Trade Options in Virtual Time ▸ You have $200 to invest. No Transactions Costs. ▸ All options are European (Size = 1 share of stock). ▸ Cash Flow Accounting is very important: Buy ➔ Cash Outflow: - $Price*Number of Contracts Sell ➔ Cash Inflow: +$Price *Number of Contracts Residual ➔ Buy a Bond: -$10.50 (for example) At end of month bond matures: +$10.50 (your residual earns 0% interest) Trade Options in Virtual Time dfdf

Trade Options in Virtual Time Time 0 Values OLD NEW STOCK % OPTION Exerc Time to PRICE CHANGE Price Maturity KO--call $70.00 $18.35 60 2 $13.64 70 $10.07 80 KO--put $8.05 $13.29 $19.67 Micsft--call $85.00 $14.81 75 $9.26 85 $5.43 95 Micsft--put $4.44 $8.83 $14.95 Trade Options in Virtual Time dfdf

Trade Options in Virtual Time Bullish #1 OLD NEW STOCK % OPTION X Time to PRICE CHANGE Price Maturity KO--call $70.00 $82.54 17.9% $18.35 $22.54 22.8% 60 $13.64 $12.54 -8.1% 70 $10.07 $2.54 -74.8% 80 KO--put $8.05 $0.00 -100.0% $13.29 $19.67 Micsft--call $85.00 $117.80 38.6% $14.81 $42.80 189.0% 75 $9.26 $32.80 254.3% 85 $5.43 $22.80 320.3% 95 Micsft--put $4.44 $8.83 $14.95 Trade Options in Virtual Time dfdf

Trade Options in Virtual Time Bullish #2 OLD NEW STOCK % OPTION X Time to PRICE CHANGE Price Maturity KO--call $70.00 $87.76 25.4% $18.35 $27.76 51.3% 60 $13.64 $17.76 30.2% 70 $10.07 $7.76 -23.0% 80 KO--put $8.05 $0.00 -100.0% $13.29 $19.67 Micsft--call $85.00 $106.25 25.0% $14.81 $31.25 111.0% 75 $9.26 $21.25 129.5% 85 $5.43 $11.25 107.4% 95 Micsft--put $4.44 $8.83 $14.95 Trade Options in Virtual Time dfdf

Trade Options in Virtual Time Bearish #1 (only 1 stock is bearish, do not know which one) OLD NEW STOCK % OPTION X Time to PRICE CHANGE Price Maturity KO--call $70.00 $54.97 -21.5% $18.35 $0.00 -100.0% 60 $13.64 70 $10.07 80 KO--put $8.05 $5.03 -37.5% $13.29 $15.03 13.1% $19.67 $25.03 27.2% Micsft--call $85.00 $73.74 -13.2% $14.81 75 $9.26 85 $5.43 95 Micsft--put $4.44 $1.26 -71.7% $8.83 $11.26 27.4% $14.95 $21.26 42.2% Trade Options in Virtual Time dfdf

Trade Options in Virtual Time Bearish #2 (only 1 stock is bearish, do not know which one) OLD NEW STOCK % OPTION X Time to PRICE CHANGE Price Maturity KO--call $70.00 $66.35 -5.2% $18.35 $6.35 -65.4% 60 $13.64 $0.00 -100.0% 70 $10.07 80 KO--put $8.05 $13.29 $3.65 -72.6% $19.67 $13.65 -30.6% Micsft--call $85.00 $73.81 -13.2% $14.81 75 $9.26 85 $5.43 95 Micsft--put $4.44 $1.19 -73.3% $8.83 $11.19 26.6% $14.95 $21.19 41.7% Trade Options in Virtual Time dfdf

Trade Options in Virtual Time Bearish #3 (VERY Bearish) Trade Options in Virtual Time dfdf

Trade Options in Virtual Time Markets Expect High Volatility. (Ex-post volatility turns out low) OLD NEW STOCK % OPTION X Time to PRICE CHANGE Price Maturity KO--call $70.00 $68.26 -2.5% $18.35 $8.26 -55.0% 60 $13.64 $0.00 -100.0% 70 $10.07 80 KO--put $8.05 $13.29 $1.74 -86.9% $19.67 $11.74 -40.3% Micsft--call $85.00 $86.62 1.9% $14.81 $11.62 -21.5% 75 $9.26 $1.62 -82.5% 85 $5.43 95 Micsft--put $4.44 $8.83 $14.95 $8.38 -44.0% Trade Options in Virtual Time dfdf

Trade Options in Virtual Time Markets Expect High Volatility. (Ex-post volatility turns out low #2) OLD NEW STOCK % OPTION X Time to PRICE CHANGE Price Maturity KO--call $70.00 $68.65 -1.9% $18.35 $8.65 -52.9% 60 $13.64 $0.00 -100.0% 70 $10.07 80 KO--put $8.05 $13.29 $1.35 -89.8% $19.67 $11.35 -42.3% Micsft--call $85.00 $85.55 0.7% $14.81 $10.55 -28.8% 75 $9.26 $0.55 -94.0% 85 $5.43 95 Micsft--put $4.44 $8.83 $14.95 $9.45 -36.8% Trade Options in Virtual Time dfdf

Trade Options in Virtual Time Bottom Straddle: {+C,+P}same K, or Bottom Strangle{+C(KH),+P(KL)} OLD NEW STOCK % OPTION X Time to PRICE CHANGE Price Maturity KO--call $70.00 $56.22 -19.7% $18.35 $0.00 -100.0% 60 $13.64 70 $10.07 80 KO--put $8.05 $3.78 -53.0% $13.29 $13.78 3.7% $19.67 $23.78 20.9% Micsft--call $85.00 $101.69 19.6% $14.81 $26.69 80.2% 75 $9.26 $16.69 80.3% 85 $5.43 $6.69 23.3% 95 Micsft--put $4.44 $8.83 $14.95 Trade Options in Virtual Time dfdf

Trade Options in Virtual Time Bearish #2 OLD NEW STOCK % OPTION X Time to PRICE CHANGE Price Maturity KO--call $70.00 $53.73 -23.2% $18.35 $0.00 -100.0% 60 $13.64 70 $10.07 80 KO--put $8.05 $6.27 -22.2% $13.29 $16.27 22.4% $19.67 $26.27 33.5% Micsft--call $85.00 $75.96 -10.6% $14.81 $0.96 -93.5% 75 $9.26 85 $5.43 95 Micsft--put $4.44 $8.83 $9.04 2.3% $14.95 $19.04 27.3% Trade Options in Virtual Time dfdf

Trade Options in Virtual Time Thank you! (a Favara) Trade Options in Virtual Time dfdf