Question
2a. What is strike price that will generate that 25 delta for the put? (hint: delta for put is connected to CDF function. Using delta,
2a. What is strike price that will generate that 25 delta for the put? (hint: delta for put is connected to CDF function. Using delta, you can figure out z-score that generates that delta. You can find the z-score either using normal table or in EXEL with norm.s.inv() function. The input to that function is the cumulative probability and output is the z-score. Then you can convert the z-score to strike price). 2b. You bought 50 put contracts with 25 delta. Market moved downward by $5 the next day. You did not hedge your put position. What is PnL from delta / gamma/ theta respectively? (note: each contract corresponds to 100 shares).
2c. Consider a market marker who sold those 50 puts to you. He immediately hedged the position delta with underlying shares. How many shares does he need to sell immediate?
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