Suppose you write 1 call option and buy Ns shares of stock. How many shares must you buy to create a portfolio with a riskless payoff (which is called a hedge portfolio)? What is the payoff of the portfolio?

MINI CASE

Assume that you have just been hired as a financial analyst by Triple Play Inc., a mid-sized California company that specializes in creating high-fashion clothing. Since no one at Triple Play is familiar with the basics of financial options, you have been asked to prepare a brief report that the firm's executives could use to gain at least a cursory understanding of the topic. To begin, you gathered some outside materials the subject and used these materials to draft a list of pertinent questions that need to be answered. In fact, one possible approach to the paper is to use a question-and-answer format. Now that the questions have been drafted, you have to develop the answers.