Question
Kzin Gravitronics is doing very well following the departure of General Products from the market. Right now, it sells for $55 per share. You are
Kzin Gravitronics is doing very well following the departure of General Products from the market. Right now, it sells for $55 per share. You are an options writer, and you have written 5000 call options at a strike price of $60 on Kzin Gravitronics expiring in 18 months. To hedge your position, you can buy or sell Kzin Gravitronics stock, as well as Kzin Gravitronics call options with a strike price of 50, expiring in 18 months. The annual standard deviation of Kzin Gravitronics stock is 30%. The interest rate on money is 10%. Explain how much of each asset you will long and short to hedge your portfolio.
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