Question
The current price of IBM is $170 per share. The six month 160 strike price call option has a current market price of $15 and
The current price of IBM is $170 per share. The six month 160 strike price call option has a current market price of $15 and a delta of 0.86. The three month 170 strike price put option has a current market price of $6 and a delta of 0.45. Answer the following questions.
A. How would you set up a delta-neutral portfolio involving positions in IBM stock and the call option? Show that your portfolio is indeed unaffected by a $1 increase or decrease in the stock price of IBM.
B. How would you set up a delta-neutral portfolio involving positions in the call and put option? Show that your portfolio is indeed unaffected by a $1 increase or decrease in the stock price of IBM.
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