Annualizing

Question 1

Annual Volatility (standard deviation)

Answer 1

Standard deviation (daily)= SD*250^1/2

Standard deviation (weekly) = SD*52^1/2

Standard deviation (monthly) =
SD * 12^1/2

Question 2

Bull spread (used when anticipating rising stock prices)

Answer 2

Buy a call option with low exercise price and short call with high exercise price

Question 3

Bull spread (net premium, max profit, % return)

Answer 3

Net premium (NP) = (-long prem + short premium) = max potential loss

Max profit = [C(high) - C(low) - NP]

Break-even point = Low X + NP

Potential spread = (ΔHigh and low calls exercise prices/ NP) *100

Question 4

Bear spreads: used when anticipating prices to decline

Answer 4

Buying a put option w/ a high X and selling a put with a low X

Question 5

Bear spread (NP, max profit, break even, % return)

Answer 5

NP = (-Buying prem + selling prem)

Max profit = [P(high) - P(low) - NP]

Break-even = high X - NP