Junior quant interview question: You work on the equity derivs desk at J.P. GoldmanStanley. A client comes to you and wishes to buy a perpetual GME binary call option, which pays $1,000 if the price ever trades above $1,000. What do you quote them, and how wide is your spread?
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Replying to @quantian1
My mid is the current share price, spread is the bid/offer spread of the underlying, plus some to cover gap risk (eg if the stock touches 1000 and immediately gaps down to 900) plus the profit I can gouge them for.
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Replying to @macrocephalopod @quantian1
this only works because of the infinite maturity right, otherwise you have the risk of your hedge doing whatever and your binary expiring worthless
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Replying to @TheSpeculator0 @quantian1
Yeah if it’s not a perpetual it is... more complicated
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That gives an upper bound on the price but you can't give a two way price like this (I mean, assuming you do actually want to see some flow)
5:22 PM - 27 Jan 2021
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