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Suppose you hold LLL employee stock options representing options to buy 10,400 shares of LLL stock. LLL accountants estimated the value of these options using the Black-Scholes-Merton formula and the following assumptions:

S = current stock price = $24.67

K = option strike price = $25

r = risk-free interest rate = .042

s = stock volatility = .32

T = time to expiration = 3.5 years

You wish to hedge your position by buying put options with three-month expirations and a $30 strike price. How many put option contracts are required?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92846216

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