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In: Finance

Suppose that call options on ExxonMobil stock with time to expiration 6 months and strike price...

Suppose that call options on ExxonMobil stock with time to expiration 6 months and strike price $99 are selling at an implied volatility of 31%. ExxonMobil stock currently is $99 per share, and the risk-free rate is 3%. If you believe the true volatility of the stock is 34%

a. If you believe the true volatility of the stock is 34%, would you want to buy or sell call options?

b. Now you need to hedge your option position against changes in the stock price. How many shares of stock will you hold for each option contract purchased or sold? (Round your answer to 4 decimal places.)

Number of shares___________

Solutions

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 1 year ago
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