1a) You short 200 contracts of a call option on Stock XYZ. The contract multiplier is 100, i.e. each contract is on 100 shares of the stock.

In addition, you hold the following positions as of the end of previous trading day: 15,559 shares of the underlying stock; and $809,608 in debt.

The XYZ stock price is $51 right now. The risk-free interest rate is 4% per year. There are 252 trading days in a year.

Using the Black-Scholes model, you establish that the total delta of your option position is

-13,495

You adjust your hedge to bring your shareholding to match the new option delta. Which of the following is correct for your DEBT account, after you make the necessary adjustments?

	a.	$809,608 - (15,559 13,495)*51 = 704,344
	b.	$809,608e(0.04*1/252) + (15,559 13,495)*51 = 915,000
	c.	$809,608e(0.04*1/252) (15,559 13,495)*51 = 703,932
	d.	$809,608 + (15,559 13,495)*51 = 914,872

1b) You short 200 contracts of a call option on Stock XYZ. The contract multiplier is 100, i.e. each contract is on 100 shares of the stock. At the time when you take the option position, option premium is 0.95 per share. You also decide to hedge your option position by purchasing some underlying stock with borrowed funds.

One day later, option price is $1.20. Interest rate and volatility are constant.

Which of the following statements is correct?

	a.	To adjust the hedge, you need to increase your debt account
	b.	To hedge the initial position, you needed to buy 20,000 shares of the stock
	c.	The underlying stock price went down since you took the option position
	d.	The delta of the option went down since you took the option position