Assume you write a call option on a non dividend paying stock. The option has a strike price of $45, volatility of 30%, a risk free return of 8% and 91 days until expiration. The current stock price in $40 and the option is for 100 shares of stock.
a) What initial investment is required for a delta hedged portfolio?
b) Calculate the overnight profit on the portfolio if the stock price increases to $40.50 and if it decreases to $39.