Assume that the share price of ABC stock is $90. Assume the risk less annual interest rate is 8% and the volatility of the share price is 8%

Suppose that you sold an American put option P on the underlying stock ABC. You calculated the delta and Gamma of the put option and found (p) = - 0.40 and (p) = 0.30

Suppose you want a position which is both delta and Gamma neutral. Determine the hedge in the following 2 cases;

a)Use the underlying stock itself and a call option C on the stock price (with different strike and maturity as with the put), with (C) = 0.25 and (C) = 0.10

b)Use the underlying stock itself and a call option with the same strike and maturity as the put option. (Answer: Buy one call and short sell one share)