An underlying asset (such as a stock) has a gamma of 1.00, which can be used to hedge gamma from an options position.

True or False

You are a trader in S&P 500 Index options for an investment bank. Your position has the following net greeks (after multiplying the position size times the gamma per exercise price and the price multiplier): delta = 0, gamma = -$400. The S&P 500 Index is currently at $2665.

(1) if the S&P 500 Index moves to $2664, what is the new net delta of the position? (show work)

it is still zero

-$400

+$400

-$800

+$800

none of the above

(2) given your answer in 13(1) above, what offsetting transaction would you do to hedge the delta dynamically?

buy 400 shares of the S&P 500 Index

sell 800 shares of the S&P 500 Index

sell 400 shares of the S&P 500 Index

nothing, because the position is already delta-neutral

buy 800 shares of the S&P 500 Index

You are a trader in S&P 500 Index options for an investment bank. Your position has the following net greeks (after multiplying the position size times the gamma per exercise price and the price multiplier): delta = 0, gamma = +$700. The S&P 500 Index is currently at $2665.

(1) if the S&P 500 Index moves to $2666, what is the new net delta of the position? (show work)

it is still zero

-$700

+$700

-$1400

+$1400

none of the above

Given your answer in 14(1) above, what offsetting transaction would you do to hedge the delta dynamically?

buy 700 shares of the S&P 500 Index

sell 1400 shares of the S&P 500 Index

sell 700 shares of the S&P 500 Index

nothing, because the position is already delta-neutral

buy 1400 shares of the S&P 500 Index

If you no longer wanted to be long +$700 gamma, what would you try to do to hedge the gamma dynamically?

sell an extra 700 shares of the S&P 500 Index

buy an extra 700 shares of the S&P 500 Index

sell an option in a quantity such that the net gamma of that trade would equal

- $700 gamma, thereby offsetting the original +$700 gamma

d. buy an option in a quantity such that the net gamma of that trade would equal + $700 gamma, thereby offsetting the original +$700 gamma

The at-the-money option typically has the highest vega compared to in-the-money options and out-of-the-money options with the same expiration date and other variables.

True or False

You are a trader in IBM options for an investment bank. Your position is 100 of the Jan 200 calls long, and that option has the following greeks: delta = .35, gamma = 0, vega = $1.68. IBM stock is currently at $195.

(1) if you wanted to hedge the vega risk of the position, which of the following trades would help to accomplish that goal?

buy 1680 shares of IBM stock

sell any IBM options that totaled $1.68 of vega

sell 1680 shares of IBM stock

sell an IBM option with a .35 delta

none of the above

Which is not a popular method of calculating Value at Risk?

Variance-Covariance Method

Delta Normal Method

Historical Method

Monte Carlo Simulation

Casablanca Simulation

Use the table above for the following questions if necessary.

An underlying asset (such as a stock) has a gamma of 1.00, which can be used to hedge gamma from an options position.

True or False

You are a trader in S&P 500 Index options for an investment bank. Your position has the following net greeks (after multiplying the position size times the gamma per exercise price and the price multiplier): delta = 0, gamma = -$400. The S&P 500 Index is currently at $2665.

(1) if the S&P 500 Index moves to $2664, what is the new net delta of the position? (show work)

it is still zero

-$400

+$400

-$800

+$800

none of the above

(2) given your answer in 13(1) above, what offsetting transaction would you do to hedge the delta dynamically?

buy 400 shares of the S&P 500 Index

sell 800 shares of the S&P 500 Index

sell 400 shares of the S&P 500 Index

nothing, because the position is already delta-neutral

buy 800 shares of the S&P 500 Index

You are a trader in S&P 500 Index options for an investment bank. Your position has the following net greeks (after multiplying the position size times the gamma per exercise price and the price multiplier): delta = 0, gamma = +$700. The S&P 500 Index is currently at $2665.

(1) if the S&P 500 Index moves to $2666, what is the new net delta of the position? (show work)

it is still zero

-$700

+$700

-$1400

+$1400

none of the above

Given your answer in 14(1) above, what offsetting transaction would you do to hedge the delta dynamically?

buy 700 shares of the S&P 500 Index

sell 1400 shares of the S&P 500 Index

sell 700 shares of the S&P 500 Index

nothing, because the position is already delta-neutral

buy 1400 shares of the S&P 500 Index

If you no longer wanted to be long +$700 gamma, what would you try to do to hedge the gamma dynamically?

sell an extra 700 shares of the S&P 500 Index

buy an extra 700 shares of the S&P 500 Index

sell an option in a quantity such that the net gamma of that trade would equal

- $700 gamma, thereby offsetting the original +$700 gamma

d. buy an option in a quantity such that the net gamma of that trade would equal + $700 gamma, thereby offsetting the original +$700 gamma

The at-the-money option typically has the highest vega compared to in-the-money options and out-of-the-money options with the same expiration date and other variables.

True or False

You are a trader in IBM options for an investment bank. Your position is 100 of the Jan 200 calls long, and that option has the following greeks: delta = .35, gamma = 0, vega = $1.68. IBM stock is currently at $195.

(1) if you wanted to hedge the vega risk of the position, which of the following trades would help to accomplish that goal?

buy 1680 shares of IBM stock

sell any IBM options that totaled $1.68 of vega

sell 1680 shares of IBM stock

sell an IBM option with a .35 delta

none of the above

Which is not a popular method of calculating Value at Risk?

Variance-Covariance Method

Delta Normal Method

Historical Method

Monte Carlo Simulation

Casablanca Simulation

Use the table above for the following questions if necessary.