Question
An investor has the following portfolio of OTC options on XYZ Ltd. shares: Type Number Delta Call Short 400 0.25 Call Long 300 0.85 Put
An investor has the following portfolio of OTC options on XYZ Ltd. shares:
| Type | Number | Delta |
| Call | Short 400 | 0.25 |
| Call | Long 300 | 0.85 |
| Put | Long 1000 | -0.40 |
An exchange traded call option with a delta of 0.50 currently sells for $6. Each option covers one XYZ share.
- What is the delta of the portfolio?
- How could the investor delta hedge the portfolios exposure using the exchange traded call? Show your calculations.
- What does the portfolios gamma measure? What does a large gamma imply about the delta of the portfolio and for keeping the portfolio delta neutral over time?
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Finance With Monte Carlo
Authors: Ronald W. Shonkwiler
2013th Edition
146148510X, 978-1461485100
