You are holding call options on a stock. The stock’s beta is .75, and you are concerned that the stock market is about to fall. The stock is currently selling for $5 and you hold 1 million options on the stock (i.e., you hold 10,000 contracts for 100 shares each). The option delta is .8. How much of the market-index portfolio must you buy or sell to hedge your market exposure?

You are holding call options on a stock. The stock’s beta is .75, and you are concerned that the stock market is about to fall. The stock is currently selling for $5 and you hold 1 million options on the stock (i.e., you hold 10,000 contracts for 100 shares each). The option delta is .8. How much of the market-index portfolio must you buy or sell to hedge your market exposure?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 15MC

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