Suppose S = $ 37, r = 8 %, delta(the annualized dividend rate) is 3 %, sigma(the annualized standard deviation of the continously compounded stock returns) is 41 %. Suppose you sell a $ 42 - strike call with 100 days to expiration.
a) What is delta, the partial derivative of the call price with respect to the price of the underlying asset
?
b) If the option is on 100 shares, what investment is required for a delta-hedged portfolio
?
c) What is your overnight profit if the stock tomorrow is $ 37.95
?
You can earn partial credit on this problem.