Question: You write a call option on Amazon stock for a premium of $20. You find that the delta of the call option is 2, how

You write a call option on Amazon stock for a premium of $20. You find that the delta of the call option is 2, how do you hedge your position against price changes? A. Long a put with the same exercise price and maturity on Amazon stock. B. Short a put with the same exercise price and maturity on Amazon stock. C. Long 2 shares of Amazon stock. D. Short 2 shares of Amazon stock. A stock initially selling at $100 could increase by 5% with probability of 25% or decrease by 10% with probability of 75% every year. Suppose that the annual continuous interest rate is 0%. A put option on the stock specifies an exercise price of $110 and a time to expiration of one year, what is its price using binomial pricing method? A. $7.5 B. $12.5 C. $16.25 D. None of the above

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

12. You write a call option on Amazon stock for a premium of $20. You find that the delta of the call option is 1, how do you hedge your position against price changes? A. Long a put with the same...

You write a call option on Amazon stock for a premium of $20. You find that the delta of the call option is 1, how do you hedge your position against price changes? A. Long a put with the same...

a. You write a put option on a stock for a premium of $0.25. The exercise price is $100. What is the option's profit or loss if just prior to expiration the stock price is $101? b. Suppose that you...

Suppose a portfolio holds 6,000 shares of ABC, and a call option on stock ABC has a delta of 0.4. To completely delta hedge this long position, the portfolio manager could __________contracts (1...

OPTION PRICING. FOR THIS AND THE NEXT 3. Suppose you own 200,000 shares of a stock selling for $50 PER share. You also SOLD a CALL option on the stock with a premium of $6 per share. The option's...

You write a put option on a stock for a premium of $0.25. The exercise price is $100. What is the option's profit or loss if just prior to expiration the stock price is $101? Select one: O a. $1.00 O...

Please list and explain the three forms of market efficiency and describe one piece of evidence against the Efficient Market Hypothesis (EMH)? Consider an 8-month forward contract on AT&T stock. The...

You write a call option on MSFT stock with strike $195 and premium $21. An option for a stock is for 100 shares. How can you absolutely offset your position risk? (Hint your position as a writer is:...

Bonus Credit Question: You write a call option on a stock. The profit at contract maturity of the option position is where X equals the option's strike price, S T is the stock price at contract...

Financial Engineering ASSIGNMENT A QI. A swap bank has to entail certain risks which are inherent to the swap business and are interrelated Explain the risks involves in swap business. Q2. Call...

In 2012 there were nine skyscrapers in the world over 300 meters tall. The ordered values of height are (a) Calculate the sample variance for the nine skyscrapers. (b) Calculate the sample standard...

Distinguish between data access and access privileges. Design and explain a database authorization table as an example.

Which one of the following methods of analysis ignores the time value of money? 1 9 Multiple Cholce 0 . 5 pointsDiscounted cash flow analysisPaybackProfitability indexInternal rate of return

A company is preparing completing their Cash Budget. The following data has been prepared for cash receipts and payments. January February March Cash receipts $1,061,200 $1,182,400 $1,091,700 Cash...