There is another call option on IBM shares with an exercise price of $125 and the same expiration date (March 18, 2016).

There is another call option on IBM shares with an exercise price of $125 and the same expiration date (March 18, 2016). Construct a delta- and gamma-hedge portfolio on January 4, 2016 involving the sale of 1,000 of the 130-call option. Then rebalance the portfolio at the end of the next day, when the share price goes down to $135 per share. Again, use the implied volatility as the correct volatility for the IBM shares. (You may calculate the deltas and gammas using the formula or the BlackScholesMertonBinomial10e.xlsm file provided by the textbook’s authors. If you use the latter, include a screen shot of the Excel spreadsheet in your answer.)

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