What is the value of the put option

Reference no: EM13262142

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.

I. What long position in the stock is necessary to hedge a short call option when the strike price is $32? Give the number of shares purchased as a percentage of the number of options that have been sold.

II. What is the value the call option?

III. What long position in the stock is necessary to hedge a long put option when the strike price is $32? Give the number of shares purchased as a percentage of the number of options purchased option.

IV. What is the value of the put option.

V. What is the risk neutral probability of the stock price moving up?

Reference no: EM13262142

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