An asset manager has a long position of 7,000 shares of company DM. The asset manager wants to hedge 35% of the market risk associated with this position. For that purpose, it has been decided to use put options with shares of company DM as underlying. The absolute value of the delta of this put option is 0.7.

1. What type of risk does delta measure and what are its limitations as a risk measure? Explain your answer.

2. Give an example, explaining its rationale and quantifying it, of a hedging strategy based on the use of put options that the asset manager can implement in order to reach his hedging objective.