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Suppose that call options on ExxonMobil stock with time to expiration 6 months and strike...

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Finance

Suppose that call options on ExxonMobil stock with time to expiration 6 months and strike price $93 are selling at an implied volatility of 25%. ExxonMobil stock currently is $93 per share, and the risk-free rate is 5%. If you believe the true volatility of the stock is 29%.

a. If you believe the true volatility of the stock is 29%, would you want to buy or sell call options?

multiple choice

  • Buy call options

  • Sell call options

b. Now you need to hedge your option position against changes in the stock price. How many shares of stock will you hold for each option contract purchased or sold? (Round your answer to 4 decimal places.)

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