Consider an option on a non-dividend-paying stock when the stock price is $48, the strike price is $45, the risk-free interest rate is 6% per annum, the volatility is 20% per annum, and the time to maturity is five months. It can be shown that d1 = .7576 and d2 = .6285.
Create a delta neutral portfolio of call options and stock. Short 10,000 call options (100 contracts). How many shares would you buy or sell?
Make sure that you show or explain all calculations. Make sure that you state the number of shares. Make sure that you state whether you would buy or sell the shares