Binomial Option 2

The interest rate is 4% per year simple interest. ABC Corp. stock is trading at $152. A European call option expiring in one year has a strike price of $170. At call option expiration, the stock price will be either $128 or $190. If we write 31 call contracts, a risk-neutral hedge portfolio would include which transactons?

Please Choose One

1. Short 500 shares and borrow $61,538
2. Buy 1000 shares and lend $123,077
3. Short 3100 shares and borrow $253,569
4. Buy 3100 shares and lend $298,444