The issue with delta is that it changes each time the underlying stock changes as we have seen in binomial tree model 1. It will make analysis easier by taking a slightly incorrect, assuming that the delta remains constant over a short period of time. Question A3 (Risk and Reward for Call Buyer}. We use data in FigIre l and Ta ble 2 to answer this qurstion. Table 2 contains delta for two of example options. Table 2'. Delta of Two Calls (Question A3] Which call is the better buy if you expect BHP mnunon shares to quickly rise to 3:119 per share? You need elaborate on your analysis. [Words limit: Bill; 15 Marks} Assume that you have bought calls, 1when price of BHP common shares drops, the simplest response that you can give is to sell your calls so as to cut your losses. Of course, you might want to continue holding these calls hoping the stock can rally baclt and eventually be above the strike price. Very often, you will be disappointed. On the contrary, when stock price rises, you would like to take or secure your prot. In general, there are four strategies as a followlip response for increasing storlr price (call them "followup actions" }: 1. "Do nothing". You can continue to hold existing calls. 2. "Liquidate". You can sell the calls {close your position] to take prots. Given that you have to pay commissions by trading stocks, it is rarely to your benet to exercise the call. H. "Roll up". 1I'ou sell the calls you are holding, pocket the original investment, and use the remaining proceeds to purchase outofthemoney calls. 4. "Spread". You sell outofthemoney call against your current call to create a bull spread. You wish the selling premium muld cover at least the original cost of the long call. 1Clue important measure to tell you how sensitive of delta to underlying stock changes is named "gamma\" hr}