The Following Information Is Given About Options on the Stock $\sigma$

question 8

Multiple Choice

The following information is given about options on the stock of a certain company.
S₀ = 23 X = 20
r_c = 0.09 T = 0.5
$\sigma$ ² = 0.15
No dividends are expected.
Use this information to answer questions 1 through 8.
-Suppose you feel that the call is overpriced.What strategy should you use to exploit the apparent mis-valuation? (Due to differences in rounding your calculations may be slightly different."none of the above" should be selected only if your answer is different by more than 10 shares. )

• A)buy 791 shares,sell 1,000 calls
• B)buy 705 shares,sell 1,000 calls
• C)sell short 791 shares,buy 1,000 calls
• D)sell short 705 shares,buy 1,000 calls
• E)none of the above

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