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
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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 sharesSuppose 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 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.-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?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?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.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.