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The financial institution has sold a call option for $60,000 more than its theoretical value according to the Black-Scholes model. To lock in the $60,000 profit and hedge against risk, the institution should buy 100,000 shares of the underlying stock. This would allow it to profit $100,000 if the stock price rises above the strike price at expiration, offsetting any losses from having to pay out the option. The strategy of buying the underlying stock when selling a call option is known as taking a covered p
- Author
- nishant
- Language
- EN