Call Option

Put Option

1.
2.
3.
4.
5.

Exchange traded Options Market

OTC Options Market
The key differences between these two
markets for options are:
Transparency
Standardization
Initial Margins and Mark to Market
Easy Close out
Delivery Rare

 In-the-money:

A put or a call option is said to in the

money when it is advantageous for the
investor to exercise it.
Call option Share price > Exercise
price
Put option Exercise price > Share
price

 At-the-money:

When the holder of a put or a call option

does not lose or gain whether or not he
exercises his option, the option is said to be
at-the-money.
Share price = Exercise price

 Out-of-the-money:

A put or a call option is out of the money if

it is not advantageous for the investor to
exercise it.
Call option Exercise price > Share
price
Put option Share price > Exercise
price

a)
b)

There is always a choice available to the

holder to exercise immediately or defer it
for later point of time, where it could
become more profitable.
The two most important factors to
determine the price would be
The extent to which the option is in the
money and
The chances that before expiry the option
will become deeper ITM or will turn into in
the money if it is presently OTM.

Therefore the price of an option has two

components called intrinsic value and time
value.

The payoff the holder gets by exercising the

option is called the intrinsic value of the
option.
The intrinsic value is
For call option : Max {(S-X), 0}
For put option : Max {(X-S), 0}
The value of call option can never fall below
its intrinsic value.
ITM option exercising would lead to positive
cash inflow to the holder.

ATM option leads to no cash inflow to the

holder if exercised.
OTM option would lead to negative cash
inflow to the holder if exercised.

The value attached to the chances that the

strike price will be reduced in times to come
before expiry of the option contract is called
the time value of an option.
The time value is the excess of actual value
over intrinsic value.
Time value of the option
= Actual price Intrinsic Value

It will be paid by the buyer for the

probability that option will turn greater ITM
before expiration.
Time value cannot be negative.
The entire premium paid for ATM options is
attributable to the time value as the
intrinsic value of the option is zero.
For
OTM
options,
the
time
value
approaches zero.

For a call or a put option, which is ATM or

OTM, the entire premium amount is the
time value.
For an ITM option, time value may or may
not exist.
Generally, other things being equal, the
longer the time of a call to maturity, the
greater shall the time value be.
Therefore,
Time Value of a Call C-{Max (S-E, 0)},
Time Value of a Put P-{Max (E-S, 0)}

Consider the following data about calls on

a hypothetical stock and calculate time
value of money.

Option Exercise
Price

Stock
Price

Rs.80

Rs.83.50

Call
Option
Price
Rs.6.75

Rs.85

Rs.83.50

Rs.2.50

Classification

OTM

ITM

A 2 month call option on the Infosys with strike

price of s 2100 is selling for Rs 140 when the
share is trading at Rs 2200. Find out the
following.
What is the intrinsic value of the call option?
Why should one buy the call for a price in
excess of intrinsic worth?
Under what circumstances the option holder
would exercise his call?
What is the payoff of the holder and writer if
the price of Infosys share is Rs 2000, 2250,and
2500 on the date of expiry of the option?

1.
2.
3.
4.
5.
6.

There are several factors affecting

option pricing. They are:
Stock Price
Exercise Price
Time to maturity
Expected Dividends
Risk free interest rate
Volatility in the stock price

The price of the underlying is the key factor

that determines the price of an option.
The price of an option premium for a given
strike price will undergo change based on
the price of the underlying stock.
The closer the market price is to the strike
price, the rate of change will be the
highest.
For strike prices farther away from the
market price, the rate of change of option
premium will be lower.

Strike price is the contracted price that would

be exchanged in the event of the exercise of
the option by the buyer of the contract.
Hence strike price plays a vital role in
determining the price of an option contract.
The exercise price will remain the same
throughout the life of an option contract and
will not undergo any change.

With more time there is more uncertainty.

More the time to expiry, greater are the
chances that there would be fluctuation in
the price of the underlying
The time to expiration of the option contract
decreases, the value of the option would
erode.
If an investor buys an option that is three
months away from expiration, it will be more
expensive than a similar option that is only
five days from expiration.

The cost of carry would depend upon the

risk-free rate of interest in the market
concerned.
The higher the interest rate, the higher
the call option price and lower the put
option price.
The lower the interest rate, the lower the
call option price and higher the put option
price.

Volatility is the standard deviation of the price

of the underlying over a defined period of time.
If a market becomes more volatile, the
premium for option contracts would go up.
Someone who bought options earlier would be
benefited to the detriment of someone who
previously sold options.
Buying options prior to such volatility expansion
has a high probability of success.
Higher the volatility more would be the
premium of options.

Dividends or expected dividends of an

underlying stock impacts in a peculiar way
the pricing of its derivative be it futures or
options.
The reason being that once the underlying
goes ex-dividend, the market rate of the
underlying gets reduced exactly by the
amount of dividend declared per share.
As a result of this the future market rate of
the underlying should be discounted to the
extent of the dividend per share.

European Option:
When an option is allowed to be
exercised only on the maturity date, it is
called a European Option.

American Option:
When the option can be exercised any
time before its maturity, it is called an
American Option.

For providing restrictions on option prices,

one should first derive the upper and lower
bounds for option prices.
If an option price is above the upper bound
or below the lower bound, there are
profitable opportunities for arbitrageurs.

An American or European call option gives

the holder the right to buy one share of a
stock for a certain price.
The maximum value of the call option C
cannot exceed the price of the asset itself.
Hence stock price is an upper bound to the
option price
C S or Cmax = S

Similarly the minimum price that a call option

would sell for is dependent upon its intrinsic
value.
If the option is maturing just at the time of
buying, the time value of the option can be
assumed to be zero and it must sell for its
intrinsic value.
If there is some time remaining for the
maturity the exercise price would be payable
only then.
Therefore, the minimum value or lower
bound of a non-dividend paying call option is
C S-Ee-rt or Cmin = S-Ee-rt

So, minimum value of the option shall be the

difference of spot price and the present
value of exercise price.
Suppose that S= Rs20, E= Rs18, r=10% and
t=1year, then the minimum value of the call
option will be
Cmin = S-Ee-rt = 20-18e-0.1 = 3.71
Lets say that the market is quoting the
European call option at Rs3.00, which is less
than the theoretical minimum of Rs3.71
Hence an arbitrageur can now:

Short the stock at Rs20

Buy the call option at Rs3
Will get cash inflow Rs17 = Rs20 Rs 3
Invest it for 1 year at 10% p.a. and gets Rs18.79
{17e0.1}

Now at maturity, if the S>Rs18, the

arbitrageur exercises the option and makes
a profit of
Rs18.79-Rs18=Rs0.79
If the S<Rs18, the stock is bought in market
and the short position is closed out and thus
arbitrageur can make the profit.
Suppose S=17 then the profit is
Rs18.79 Rs17 = Rs1.79.

a)
b)
c)

A stock is selling for Rs500. If the riskfree

rate of interest is 10% p.a. continuously
compounded, then at what minimum
price following call options on the stock
would sell for:
A call with strike price of Rs 450 maturing
1 month later.
A call with strike price of Rs 500 maturing
2 month later.
A call with strike price of Rs 550 maturing
3 month later.

Maximum value of a put option cannot

exceed the exercise price.
Hence the present value of the exercise
price is an upper bound to the option price.
Pmax = Ee-rt or Pmax Ee-rt
The difference of the present value of the
exercise price and the spot price provides
the lower bound.
Therefore the lower bound of a non dividend
paying put option is
Pmin = Ee-rt S or Pmin Ee-rt S

Suppose S=Rs37, E=Rs40, r=5% p.a. and

t=0.5 years, then the minimum value of a
put option will be
Pmin = Ee-rt S= 40-(0.05)(0.5) 37=Rs2.01
Lets say the market price of a European
put option is Re 1, which is less than the
theoretical minimum of Rs 2.01.
An arbitrageur can today:

Borrow Rs 38 for 6 months at 5%

buy the put for Re 1
buy the stock for Rs 37

At the end of 6 months, the arbitrageur will

be required to repay 38e(0.05)(0.5) =Rs 38.96.
Now at maturity if S< Rs40, the arbitrageur
will exercise the option to sell the stock for
Rs 40 and earns the profit of
Rs40 Rs38.96 = Rs1.04
And if S>40, the arbitrageur will not exercise
the option and sells the stock and repays
the loan and get even higher profits.
If S=42, then the profit is
Rs 42 Rs 38.96 = Rs 3.04

Consider a European put option on a non

dividend paying stock when the stock price
is Rs 38, the exercise price is Rs 40, the
time to maturity is 3 months and the risk
free rate of interest is 10% p.a. Calculate
the lower bound or minimum value of the
European put.

Lower bound for call on dividend

paying stock is
Cmin = S-Ee-rt De-rt
Lower bound for put on dividend
paying stock is
Pmin = Ee-rt S+ De-rt

There exists a relationship in the prices of

call and put known by the name of put call
parity, which is derived on the principle of
no arbitrage.
For the same underlying exercise price and
time to expiry, the call price would exceed
the put price by differential of spot price
and the present value of exercise price.
Suppose you buy a share (long position),
buy a put (long position) and sell a call
(short position).

The current share price is Rs100 and the

exercise price of put and call options is the
same i.e. Rs100. Both put and call options
are European type options and they will
expire after 3 months. There are two
possible share prices after 3 months Rs 110
or Rs 90.
The value of the portfolio will be:

Particulars

S = Rs 110
E = Rs 100

S = Rs 90
E = Rs 100

S>E

Payoff

S<E

Payoff

Value of share

110

90

+Value of put (long)

(E-S)

+10

-(S-E)

-(110100)=-10

S-(S-E)
=E

100

S+(E-S)
=E

100

- Value of Call (short)

Total Value (Pay-off)

We can see that whether price rises or falls,

the value of the portfolio at expiration is
equal to the exercise price (E).
It is a risk-free portfolio since the outcome
will be the same whatever happens to the
share price.
The present value of the portfolio can be
calculated using a riskfree rate of return (r).
PV of portfolio = S0+P0-C0=Ee-rt
The equation can be rewritten as follows:
S0+P0 = C0+Ee-rt
This relationship is called put-call parity.

This relationship will help us finding out the

value of call for a given put value and the
value of put for a given value of call.
P0 = C0-S0+Ee-rt
C0 = P0 +S0-Ee-rt
If the put call parity does not hold it
presents an arbitrage opportunity by
forming portfolios of call, put, bond and
stock.
Put call Parity relationship in case of a
dividend paying stock will be
S0+P0 = C0+D+Ee-rt

Since American style options allow early

exercise, put-call parity will not hold for
American options unless they are held to
expiration.
Early exercise will result in a departure in
the present values of the two portfolios.

A stock is prevailing at Rs 80. A call with

strike price of Rs 85 and maturing after 2
months is selling for Rs 2. Find out the price
of the put with exercise price of Rs85 and
expiry of 2 months assuming the risk free
interest rate of 6% and no dividend on the
stock for next two months.

A ratio of the trading volume of put options

to call options.
The Put-Call Ratio is the number of put
options traded divided by the number of call
options traded in a given period.
The
ratioattempts
to
measure
the
prevailing
level
of
bullishness
or
bearishness in the market.
To the investor, the put call ratio can be
used to determine when the investing
crowd may be getting either too bullish or
too bearish.

The average value for the put-call ratio is not

1.00 due to the fact that equity options traders
and investors almost always buy more calls
than puts.
Hence, the average ratio is often far less than
1.00 (usually around 0.70) for stock options.
When the ratio is close to 1.00 or greater, it
indicates a bearish sentiment.
Conversely, when the ratio is near 0.50 or
lesser, it implies a bullish sentiment.
A high put call ratio is a bullish sign as the it
points to an over-bearish crowd - and vice
versa.

1.
2.
3.

There are three types of option trading

strategies.
Hedging
Spreads
Combinations

1.
2.

Hedging can be done in two ways with the

options:
Hedging using Call and Put Options.
Hedging with Writing Call and Put options

1.
2.

Hedging represents a strategy by which

an attempt is made to limit the losses in
one position by simultaneously taking a
second offsetting position.
The offsetting position may be in the
same or a different security.
Hedging can be done through options in
the following manners:
Hedging a Long Position in Stock.
Hedging a Short Position in Stock.

An investor buying a common stock expects

that its price would increase.
However there is a risk that the price may in
fact fall.
In such case, a hedge could be formed by
buying a put, i.e. buying the right to sell.
Consider an investor who buys a share for
Rs 100. To guard against the risk of loss
from a fall in its price, he buys a put for Rs
16 for an exercise price of Rs 110.

He would exercise the option if the price

of the share is less than Rs 110.
Now if the share prices are 70, 80,
90,100, 110, 120, 130 and 140.
His payoff will be ..

A short seller of stock anticipates a

decline in the stock price.
He wants to make profit by shorting the
stock now and buying it at a lower price
in the future.
But any increase in price of stock will lead
to losses because of an obligation to
purchase at a later date.
To minimize this risk, the investor can buy
a call option with an exercise price equal
to or close to the selling price of the
stock.

Consider an investor shorts a share at

Rs 105 and buys a call option for Rs 4
with a strike price of Rs 105.
He would exercise the option if the
share price is greater than Rs 105 i.e.
exercise price.
Now if the share prices are Rs 90, 95,
100, 105, 110, 115 and 120.
His payoff will be ..

If the common stock is not expected to

experience significant price variations in
the short run, then the strategies of
writing calls and puts may be usefully
employed for earning profits.
Suppose that an investor hold shares of a
stock which he expect will experience
small changes in short term, then he may
write a call on these.
This is known as writing covered calls.

1.
2.

If the large price changes takes place,

investor will not derive any benefits
because then the option will be exercised
or else he would have to make a reversing
transaction.
The writing of covered calls i.e. agreeing to
sell the stock one have is a very
conservative strategy.
Under this following strategies may be
adopted:
Long Stock Short Call.
Short Stock Short Put.

It involves taking long position in a stock

and writing a call option.
Consider an investor who has bought a
share for Rs 100 and who writes a call
with an exercise price of Rs 105 and
receives a premium of Rs 3. If the prices
of the underlying share is 90, 95, 100,
105, 110, 115 and 120.
His net profit/ payoff will be..

An investor who shorts stock can hedge by

writing a put option.
By undertaking to be the buyer, the
investor hopes to reduce the magnitude of
loss that would be occurring from an
increase in the stock price, by limiting the
profit that could be made when the stock
price declines.
Consider an investor who short a share at
Rs 100 and write a put option for Rs 3,
having an exercise price of Rs 100.

The buyer of the put option will exercise the

option only if the share price does not
exceed the exercise price.
Now if the share prices are Rs 90, 95, 100,
105, 110, 115 and 120.
His net payoff will be..

1.

A spread is a combination of a put and a call

with different exercise prices.
A spread trading strategy involves taking a
position in two or more options of the same
type.
It involves simultaneous buying and selling call
or put options.
There are two types of spreads.
The price spread involves buying and selling
options for the same share and same expiration
date but with different strike prices. For
example, buy a BPCL December option at a
strike price of Rs 215 and sell a BPCL December
option at a strike price of Rs 210.

2.

The calendar spread involves buying

and selling option for the same share and
strike price but with different expiration
dates. For example, buy a Tata Power
December option at a strike price of Rs
95 and sell a Tata Power January option at
a strike price of Rs 95.


1.

2.

3.

4.

A spread combines options of the same

type:Bull spread: buy a call-option at one strikeprice, and sell a call-option at a higher
strike-price. [Alternative, replace the calls
by puts.]
Bear spread: buy a call-option at one
strike-price, and sell a call-option at a lower
strike-price.
Butterfly spread: buy two call-options at
strike-prices which straddle the strike-price
of two sold call-options.
Calendar spread: sell a call-option at one
strike-price, and buy a call-option with a
longer maturity at the same strike price.

An investor may be expecting the price of

an underlying share to rise, but he may not
like to take higher risk.
Therefore, when bullish sentiments on a
stock and selling another option on a stock.
A bull spread can be prepared using both
calls and puts.

An investor who is expecting a share

or index to fall, may sell the lower
exercise price option and buy the
higher exercise price option.
A bear spread can be prepared using
both calls and puts.

A butterfly spread results from positions in

options with three different strike prices.
A long butterfly spread involves buying a call
with a low exercise price (E1), buying a call with
a high exercise price(E3) and selling two calls
with an exercise price in between the two (E2).
A short butterfly spread involves the opposite
position i.e. selling a call with a low exercise
price (E1), selling a call with a high exercise
price (E3) and buying two calls with an exercise
price in between the two (E2).

While spreads involve taking positions in

call or put options only, combinations
represent option trading strategies which
involve taking positions in both calls and
puts on the same stock.
Important combination strategies include
straddles, strips, straps and strangles.

A straddle is a combined position created by

the simultaneous purchase (or sale) of a put
and a call with the same expiration date
and the same exercise price.

A strip is a combination of two puts and

one call with the same exercise price and
the same expiration date.
The investor expects that a big price
movement in the stock price will take
place but a decrease in the stock price is
more likely than an increase.

A strap is a combination of two calls and

one put with the same exercise price and
the expiration date.
If the investor is expecting that a big price
change would occur in the stock price but
feels that there is a greater likelihood of the
price increasing rather than decreasing, the
investor will consider the strategy of a
strap.

Under strips and straps, the investor

would have positive pay off irrespective
of the price movement, except when the
price equals the exercise price.
The potential pay off would be higher
under a strap strategy for share price
above the exercise price.

A strangle is a portfolio of a put and a call

with the same expiration date but with
different exercise prices.
The exercise price of the put is lower than
the exercise price of the call.
So that the profit would result if the stock
price is lower than the exercise price of the
put or if the stock price exceeds the call
exercise price.

A condor is an investment strategy which

involves four call options or four put
options.
It may be a long condor or a short condor.
A long condor involving call options is
created by buying calls one with a very
low exercise price E1 and another with a
comparatively higher exercise price E4- and
selling two calls options one with a price
E2 higher than E1 and other with a price E3
lower than E4.

A short condor results by reversing the

above strategy, and involving selling two
calls having exercise price E1 and E4 and
buying two calls with exercise prices of E2
and E3.

1.
2.

There are many models for valuation of

options.
From the them two more important
models are:
Binomial option pricing model.
Black and Scholes option pricing
model.

The
binomial
model
assumes
that
percentage change in share price follows a
binomial distribution.
The model is based on the assumption that
if a share price is observed at the start and
end of a period of time, it will take one of
the two values at the end of that period.
The model assumes that the share price
would
move
up
or
down
to
a
predetermined level.

There are two (and only two) possible prices for

the underlying asset on the next date. The
underlying price will either:
Increase by a factor of u% (an up tick)
Decrease by a factor of d% (a downtick)

The uncertainty is that we do not know which of

the two prices will be realized.
No dividends.
The one-period interest rate, r, is constant over
the life of the option (r% per period).
Markets are perfect (no commissions, bid-ask
spreads, taxes, price pressure, etc.)

Value of a call option:

Cj = Cu.P + Cd (1-P)
1+r
where, Cu = Max [0, Su - E]
Cd = Max [0, Sd - E]
P=id
u d
i = 1+r
u = Su/S
d = Sd/S

Value of a put option:

sPj = Pu.P + Pd.(1-P)
1+rs
where, Pu = Max [0, E - Su]
Pd = Max [0, E - Sd]

The number of shares of stock per call which

makes the payoff from the combination
independent of the price of the share is
known as hedge ratio.
Hedge ratio is denoted by .
= Cu Cd
S0(u-d)

The current price of a share is Rs 50, and it

is believed that at the end of one month the
price will be either Rs 55 or Rs 45. What will
a European call option with an exercise
price of Rs 53 on this share be valued at, if
the risk free rate of interest is 15% per
annum. Also calculate the hedge ratio.

S= 50,
E=52.50,
r=8%,
u=1.09139
d=0.92832
Calculate the value of call option and
hedge ratio.

Fisher Black and Myron Scholes

propounded a model for valuation of
options.
We can use the Black and Scholes
model under certain assumptions as
the time period becomes continuous.

1.

2.

3.
4.
5.
6.

The option being valued is a European

style option, with no possibility of an early
exercise.
The value of the share and the risk free
rate of interest is known and constant
during the life of the option.
The market is efficient.
There are no transaction costs and taxes.
There is no dividend to be paid on the
share during the life of the option.
The rates of return on a share are log
normally distributed.

The value of the call option is calculated as

follows:
C0 = S0 N(d1) E e-rt N(d2)
Where, C0= the current value of call option
S0=the current market value of share
E = the exercise price
e = 2.7183, the exponential constant
r = the risk free rate of interest
t= the time to expiration
N(d1)=the cumulative normal probability
density function.

d1= ln(S0/E) + [r +2/2]t

t
d2= d1 - t
Where, ln = the natural logarithm
= the standard deviation
The value of a put option is calculated as
follows:
P0 = C0-S0+Ee-rt
Therefore
P0 = [S0 N(d1) E e-rt N(d2) ]-S0+Ee-rt
OR

P0 = Ee-rt N(-d2) - S0 N(-d1)

The volatility for an at the money call option

can be found out by the following formula:
= 0.5 (C+P) (2/t)
E/(1+r)t
Where = 3.1416

The following data are given:

Stock price
Rs 120
Exercise price
Rs 120
Risk free rate of interest 5%p.a.
Call price
Rs 3.73
Put price
Rs 2.99
Time to maturity
45 days
Calculate the standard deviation.

1.
2.
3.
4.
5.

There are five Greek letters which are

the derivatives of Black and Scholes
Model. They are:
Delta
Gamma
Theta
Rho
Vega

1.
2.

3.

A by-product of the Black-Scholes model

is the calculation of the delta.
The deltas provide multifold information.
Deltas are interpreted as:
A measure of volatility,
A measure of the likelihood that an
option will be ITM on the expiration
day,
A hedge ratio.
The delta is denoted by .

For a call option, the delta is equal to N(d1).

For a put option, the delta is equal to N(d1)
-1.
A deeply out-of-the-money call will have a
delta very close to zero; a deeply in-themoney call will have a delta very close to
1.
Call deltas are positive; put deltas are
negative, reflecting the fact that the put
option price and the underlying stock price
are inversely related.

Delta refers to the amount by which the

price of an option changes for a unit
change in the price of the underlying
security or index.
For example, an option with a delta of 0.5
will move half a cent for every full cent
movement in the underlying stock.

Delta is also employed as a measure of the

probability that a given option will be in the
money on the expiration day.
If delta is 0.5112, it means that there is
51.12% chance that the stock price on the
expiration day will be above the option
exercise price.

In the Black and Scholes formulation, N(d1)

also gives the optimal hedge ratio.
It indicates hoe many units of the option are
necessary to mimic the returns of the
underlying stock or any other asset.
If delta is 0.5112, it implies that for every
call option purchased, 0.5112 of the share
of the stock should be sold short and since
a call option is of 100 shares, 51.12 shares
of the stock should be traded for each call.

The gamma represents the amount by

which an options delta would move in
response to a unit change in the
underlying stock price or index.
It measures the proportional change in
delta for a given change in the underlying
asset value.
It is denoted by
Gamma ()= z(d1)
S0 t

Where, z(d1) =
Where...
d1 = N(d1)
S0 = Current value of underlying asset
t = Option life as a percentage of year

For example, S0= 120, = 0.6, t=0.25

and d1= 0.37. Calculate .

Theta is the change in option price

given a one day decrease in time to
expiration.
It is thus known as time decay of the
option value.
It is nearly always negative for an option
because as the time to maturity
approaches, the option tends to become
less valuable.
It is denoted by .

For a call option

Theta()= - S0z(d1)
2 t
For a put option
Theta()= - S0z(d1)
2 t
Where,
z(d1) =

- Ee-rt x r x N(d2)

+ Ee-rt x r x N(d2)

S0 = 120
= 0.6
t = 0.25
E = 115
r = 0.10
d1 = 0.37
d2 = 0.07

Vega measures the rate of change

of the value of an option with
respect to the volatility of the
underlying stock.
Vega is always positive and identical
for call and put options.
It is denoted by .
Vega ()= S0 t z(d1)

If = 22.35.
This value indicates that if changes from
0.6 to 0.7, the call value shall be up by
Rs2.235.
If changes from 0.6 to 1.6, the call value
shall be up by Rs22.35.
While a decline in from 0.6 to 0.5 would
cause the price to fall by Rs 2.235.
The put option values would also change
similarly.

Rho is the rate of change of the value of a

derivative with respect to the interest rate.
It measures the sensitivity of an option
value to interest rate.
This refers to the rate of change of the
value of the option with respect to a unit
change in the interest rate.
It is denoted by .
For call options, rho is always positive while
for put options, it is negative.

For a call option,

Rho ()= E x t x e-rt x N(d2)
For a put option,
Rho ()= -E x t x e-rt x N(-d2)
For example, E = 115, t = 0.25, r =0.1, d 2=
0.07, N(d2) = 0.5279 and
N(-d2) =0.4721. Calculate rho for call and
put options.