(Practice with hedging ) Suppose S is a stock whose current value is 50 and whose value one year from now will be either 35 or 60.

(a) Suppose we write (sell) two (European) put options on a share of stock, each expiring a year from now, with strike 45. To hedge this position (in this situation, to eliminate risk), should we buy or sell stock? How many shares should be bought or sold?

(b) Now suppose we buy 50 shares of stock today, and we wish to hedge our position using (European) call options expiring a year from now, with strike.

(c) Should we buy or sell these call options? How many options should be bought or sold?