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Suppose that call options on ExxonMobil stock with time to expiration 3 months and strike...

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Finance

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 price 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?

multiple choice

  • Buy call options

  • Sell call options

b. Now you want to hedge your option position against changes in the stock price. Find the hedge ratio (Hint: Use the Black-Scholes model).

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