Final answer:
To hedge a short position in 100 European call options, one should buy shares equal to the total delta of the options. If each option has a delta of 0.364, this equates to purchasing 36 shares of the stock.
Step-by-step explanation:
The correct position in the stock to hedge a short position in 100 European call options depends on the delta of the options. The delta represents the amount the price of the option is expected to move for a $1 change in the price of the underlying stock. To hedge a short call option position, one would typically purchase shares of the underlying stock equivalent to the total delta of the options. This strategy is known as delta hedging. For instance, if one call option has a delta of 0.364, hedging 100 call options would require buying 36.4 shares of stock (because 100 x 0.364 = 36.4). It is important to round to the nearest whole share because you cannot purchase fractional shares. Therefore, the correct answer would be c. buy 36.24 shares of stock, rounding to the nearest whole number, which would be 36 shares for practical purposes.