Question
NIO stock is currently trading for $17. You assess that there is a chance the stock rises 20% within 30 days, otherwise it will fall
NIO stock is currently trading for $17. You assess that there is a chance the stock rises 20% within 30 days, otherwise it will fall by 15%; no other outcomes are considered possible. If you want to hedge this risk using put options with a strike price of $15, how many shares would the option hedge?
A) Cannot be answered as the risk-free rate and/or the probabilities of rise/drop are not given
B) One option would hedge 0.092436 long shares
C) One option would hedge 0.092436 short shares
D) One option would hedge 10.81829 long shares
E) One option would hedge 10.81829 short shares
RIGHT ANSWER IS B) but explain how to get there.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started