The current price of a non-divident paying stock is $30. Over the next six months it is expected to rise to $36 or fall to $26. Assume the risk-free rate is zero.
i) What long position in the stock is necessary to hedge a long put option when the strike price is $32? Give the number of shares purchased as a percentage fo the number of options purchased option.
ii) What is the value of the put option?
iii) What is the risk neutral probability of the stock price moving up?