Which side of a two-sided market
A binary contract settles at $100 if an event occurs, $0 otherwise. You judge the event's probability at . A market maker quotes you a two-sided market of $52 bid / $58 ask (you may buy at $58 or sell/short at $52). Taking your best available trade, what is your expected profit per contract (in dollars)?
Show hints (2)+
- Your fair value is dollars; compare to both the $58 ask and the $52 bid.
- You buy at the ask - profit is fair value minus the price you actually pay.
Answer
Reveal answer →Final answer
2
Want the full step-by-step worked solution? It's part of Premium - along with a worked solution for every question in the bank.
Asked at: Game-Based Aptitude, Options Market-Making