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IBM stock currently sells for 100 dollars per share. The implied volatility equals 20.0. The risk-free...

IBM stock currently sells for 100 dollars per share. The implied volatility equals 20.0. The risk-free rate of interest is 4.0 percent continuously compounded. If you owned a 200 shares of IBM stock, how many call options with a strike price of 95 and a maturity of 6 months would you have to buy (sell) to create a delta-neutral hedge? Assume each option controls one share of IBM stock. Answer should be rounded to 2 decimal places.

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Expert Solution

Delta of call=0.7173
Number of call options to be sold=200/0.7173=278.82

jeff jeffy answered 1 year ago
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