Suppose delta = -0.5 and the option is to sell 10 shares. If you buy the option the delta hedge is achieved by: Selling 10 shares Selling 5 shares Buying 5 shares Buying 10 shares
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Suppose delta = -0.5 and the option is to sell 10 shares. If you buy the option the delta hedge is achieved by:
Selling 10 shares
Selling 5 shares
Buying 5 shares
Buying 10 shares
Step by step
Solved in 3 steps
- 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 sharesYou 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?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?
- 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.-110Using 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 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?
- 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.You engage in the following strategy: Buy a call, strike price = $5, option premium = $2 Buy a call strike = $15, option premium = $4 Sell two call options with a strike price = $10; option premium = $2.50 each All options are written on 100 shares. Within $10, what is the most that you can make?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.
- Graph the profits and losses associated with writing a call option on a security with a strike price of $60 and a premium of $5. A) Suppose that you own 100 shares of the company in which you wrote the option in this question. If you purchase these shares at $50 what will your net profit/loss position look like. Now over, say share prices from $40 to $80? Construct a table and graph the situation.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?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?