Current quotes that are available on Stock A on 2nd January 2017

	(in $)	(in $)
Series	Call	Put
Jan $5.20	0.17	0.35
Jan $5.10	0.26	0.26
Jan $5.00	0.35	0.17
Stock A		$5.10
Interest Rate		3.25 p.a

Table 1: Quotes of Stock A, Call Jan17 and Put Jan 17

The number of days to maturity is 30 days (including the current day).

You own 100,000 shares of Stock A, which is currently trading at $5.10. The shares and options are quoted as above:

1. If $5.00 Call has a delta of 0.50. State how you would hedge your stock portfolio. How many of the options would you use?

.

2. Please create a synthetic sell short Stock A, using options. What is the effective price at which you short this synthetic Stock A? Describe your strategy in detail.

3. If the stock A fell to $4.50, please illustrate the resulting payoff of reverse conversion strategy using the cashflows of the current day and maturity day, in both the stock and option markets. You may assume there is no transaction cost in this case.
4. Please draw the profit/loss of your strategy (in dotted lines) and the result of your net position (in continuous line) in a graph. Please label each strategy well.