1.Suppose delta = -0.5 and the option is to sell 10 shares. If you buy the option the delta hedge is achieved by: Group of answer choices Selling 10 shares Selling 5 shares Buying 5 shares Buying 10 shares
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1.Suppose delta = -0.5 and the option is to sell 10 shares. If you buy the option the delta hedge is achieved by:
Group of answer choices
Selling 10 shares
Selling 5 shares
Buying 5 shares
Buying 10 shares
Step by step
Solved in 2 steps
- You have a portfolio of options on the same underlying as follows. Each option controls 100 shares. Long 1 call ∆ ±0.5 Short 5 calls ∆ ±0.8 Short 2 puts ∆ ±0.4 a) How many shares would you need to buy or sell to get your portfolio delta neutral?Consider long positions on options written on the same underlying stock. Option 1 is a call on 100 shares with a delta of 0.1. Option 2 is a put on 100 shares with a delta of -0.2. You also hold 100 shares. The net delta over all three positions is: A.-10 B.10 C.90 D.-110You have a portfolio of options on the same underlying as follows. Each option controls 100 shares. Long 1 call ∆ ±0.5 Short 5 calls ∆ ±0.8 Short 2 puts ∆ ±0.4 b) A traded option exists with a ∆ 0.45. This option controls 100 shares. What position in this traded option would make your portfolio delta neutral?
- Using just a put option (which controls 100 shares) with a delta of -0.75 and a position in the underlying stock, how might you put on a delta neutral position that is long volatility?You have a portfolio of options on the same underlying as follows. Each option controls 100 shares. Long 1 call ∆ ±0.5 Short 5 calls ∆ ±0.8 Short 2 puts ∆ ±0.4 c) Explain how volatility skew would affect a trader who buys a bull call spread.Suppose you purchase XYZ 100 shares of call option. Each option is with exercise price 124. Each option has a premium of 9. Suppose the XYZ stock at expiration is priced at 104. What is your total profit (or loss) from those 100 shares of investments?
- You use the Black-Scholes-Merton model for a put option on a stock. You calculate N(d1) = 0.60 and N(d2) = 0.56. a) What is the delta of the put option? b) You short 100 put options. How would you hedge your delta exposure using the underlying stock? How many shares would you need to buy or sell?4. Consider a stock with a current price of S0 = $60. The value of the stock at time t = 1 can take one of two values: S1,u = $100, S1,d = $40. The price of a risk-free bond that pays out $1 in period t = 1 is $0.90. (a) Using a one-step binomial tree, write down the possible payoffs of a put option on stock S with strike K = $60 and maturity t = 1. (b) What is the price of this put option? (c) What is the price of a call option with strike K = $60 and maturity t = 1? Please use put-call parity to find the call price.You use the Black-Scholes-Merton model for a put option on a stock. You calculate N(d1) = 0.60 and N(d2) = 0.56. a) What is the delta of the put option? Solution for A = -0.40 b) You short 100 put options. How would you hedge your delta exposure using the underlying stock? How many shares would you need to buy or sell?
- Using just a call option (which controls 100 shares) with a delta of 0.5 and the underlying stock, how might you put on a delta neutral position that is long volatility?Suppose that a hedge fund enters a market order to immediately sell 1600 shares. Compute the execution price for this trade. Top of the limit order book Price Shares 3400 103.12 2000 102.92 1600 102.71 500 102.50 Asks 100 102.30 Bids 200 102.10 700 101.89 1600 101.69 2100 101.48 3200 101.28 A. The exection price for immediately selling 1600 shares is $102.71 per share. B. The exection price for immediately selling 1600 shares is $101.83 per share. OC.The exection price for immediately selling 1600 shares is $102.10 per share. D. The exection price for immediately selling 1600 shares is $102.50 per share. O E. The exection price for immediately selling 1600 shares is $101.69 per share. O F. The exection price for immediately selling 1600 shares is $101.89 per share. G. The exection price for immediately selling 1600 shares is $102.30 per share.A trader buys a call option on a share for K2. The stock price is K25 and the strike price is K20. State the circumstances under which the trader will make a profit. State the circumstances under which the option will be exercised. Draw a diagram in support of your answers above, showing the variation of the trader’s profit with the stock price at the maturity of the option.
