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You have just sold a TWO-PERIOD call option on 100 shares of a $20 stock. In each of the next 2 periods the stock can
You have just sold a TWO-PERIOD call option on 100 shares of a $20 stock. In each of the next 2 periods the stock can go up 50% or fall by 50% The risk-free rate is 25 percent per period. The strike price is $12.00 per share. Delta hedge your short position in the option by adjusting the amount of shares that you own to "cover" the call. Note that your answer should show what you buy or sell (how many shares, strike prices, etc each period.
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