i need the answer quickly Lisa likes to buy puts on the stock XYZ. The stock istrading at $25.0 bid / 25.10 offered. The 1 - year XYZ$20 Put is offered at $2.00. (Assume that each optioncorresponds to one share of XYZ). Lisa wants to buy theput and hedge with stock, so as to be delta-neutralwhen the trade starts. What stock trade should she do?What would be her total cost for putting on the trade(stock plus option)? [Hint: compute the implied volatilityof the put first.] Assuming that implied volatility remainsthe same, that the interest rate is zero, and that thestock pays no dividends.What would be her profit/ loss in one year if XYZ pricerose to $26?

Solution-(1)Lisa wants to buy the put and hedge with stock for she has to take below tradesBuy $20…

Lisa likes to buy puts on the stock XYZ. The stock is trading at $25.0 bid / 25.10 offered. The 1 - year XYZ $20 Put is offered at $2.00. (Assume that each option corresponds to one share of XYZ). Lisa wants to buy the put and hedge with stock, so as to be delta-neutral when the trade starts. What stock trade should she do? What would be ber total cost for putting on the trade

Lisa likes to buy puts on the stock XYZ. The stock is trading at $25.0 bid / 25.10 offered. The 1 - year XYZ $20 Put is offered at $2.00. (Assume that each option corresponds to one share of XYZ). Lisa wants to buy the put and hedge with stock, so as to be delta-neutral when the trade starts. What stock trade should she do? What would be ber total cost for putting on the trade

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter5: Financial Options

Section: Chapter Questions

Problem 1P

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