Let the standard deviation of the continuously compounded return on the stock is 21 percent. Ignore dividends.

Question:

Let the standard deviation of the continuously compounded return on the stock is 21 percent. Ignore dividends. Respond to the following:
a. What is the theoretical fair value of the October 165 call? Calculate this answer by hand and then recalculate it using Black-Scholes-Merton-Binomial lOe.xlsm.
b. Based on your answer in part a, recommend a riskless strategy.
c. If the stock price decreases by $1, how will the option position offset the loss on the stock?