You have written a call option on 1 share of Z stock that is worth $15.You expect the price of the stock to either move to $20 or $10 over the next year.How many shares of Z stock should you own to perfectly hedge your position on the call option? The strike price on the option is $15.

Question

Quizplus · Accepted Answer

Value of share will either be 20 or 10
Value of option will either be 5 or 0 ======>
20s - 5 = 10s - 0 =====> c = .5

You Have Written a Call Option on 1 Share of Z