Hi, i was wondering what 'at the money' call and put options is referring to? Is this still in the syllabus? If so, how are the values of x & y calculated in the solutions? Thanks!
This phrase does not currently appear in Core Reading, but we have included it (and "in-the-money" and "out-of-the-money") in Sections 2.2 and 2.3 of Chapter 11, as they are useful to know. "At-the-money" just means that the strike price is equal to the current share price. So, for the call option in the question you refer to, the strike price is 100 (= current share price). This means that alpha is 25 (ie if the share price goes up, there's a payoff of 25) and beta is 0 (ie if the share price goes down there's a payoff of 0). Using these in the formulae derived earlier for x and y gives the answers needed.
