You have just sold a call option on 100 shares of stock. The stock price $74 and its volatility is 60% per annum. The strike price of the option is $86 and it matures in 6 months. The risk-free rate is 4% per annum compounded.

A.) What position should you take in the stock for delta neutrality?

B.) Suppose after you set up the delta-neutral position, the stock price suddenly jumps to 70. Would you buy or sell shares to maintain delta neutrality. Why? Did you gain or lose money or had no gain or loss in your position? Why? You do not need to calculate gain or loss. The explanation is important. Write your answer in the space for the following question.