Suppose you are considering selling a one year call options with a strike price of $80 for a stock that is currently trading at $75. The risk free interest rate is 4%. The cost per option is $8.152, Δ = 0.527, Γ = .018, and θ = -.016.
Suppose that you sell 50 of the call options and want to Δ – hedge your position.
a. What is the net cost of your position?
b. Suppose that the next day the price of the stock is $74.50. What is your one day profit or loss?