Essentials Of Investments
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ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Suppose that call options on ExxonMobil stock with time to expiration 3 months and strike
price $90 are selling at an implied volatility of 30%. ExxonMobil stock currently is $90 per share, and the risk-free rate is 4%.
a. If you believe the true volatility of the stock is 32%, would you want to buy or sell call options?
b. Now you need to hedge your option position against changes in the stock price. How many shares of stock will you hold for each option contract purchased or sold?
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