Question: 1. Explain how you would create a short forward position in a stock by using European options? 2. The current price of a non-dividend-paying stock

1. Explain how you would create a short forward position in a stock by using European options?

2. The current price of a non-dividend-paying stock is $30. Over the next six months it is expected to rise to $36 or fall to $26. Assume the risk-free rate is zero. An investor sells a call option with a strike price of $33 per share. How would the investor hedge the call option position? Assume that the option is written on 100 shares of stock.

3. The current price of a non-dividend-paying stock is $40. Over the next year it is expected to rise to $52 or fall to $30. Assume the risk free rate is zero. An investor buys a put option with a strike price of $42. How would the investor hedge the put option position? Assume that the option is written on 100 shares of stock.

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