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.)