Options using the black-scholes-merton formula

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Reference no: EM13937465

Suppose you hold LLL employee stock options representing options to buy 13,000 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 = $29

K = option strike price = $30

r = risk-free interest rate = .055

σ = stock volatility = .23

T = time to expiration = 3.5 years

You wish to hedge your position by buying put options with three-month expirations and a $27.5 strike price. How many put option contracts are required? (Note that such a trade may not be permitted by the covenants of many ESO plans. Even if the trade were permitted, it could be considered unethical.)

Reference no: EM13937465

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