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1. You are given: Call Price = 2.7804, Delta = 0.5724, Gamma = 0.0652. Suppose there is a market for a 90-day call option with
1. You are given:
Call Price = 2.7804, Delta = 0.5724, Gamma = 0.0652.
Suppose there is a market for a 90-day call option with strike 40. You are given two written two calls and there is no bid-ask spread.
With the information above, show how to neutralize both delta and gamma using the underlying stock and an otherwise identical put (same asset, strike, and maturity).
Show all of your work.
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