Question
Consider the following 4 option portfolios: (1) 1-year 25-delta put - 1-year 25-delta call, (2) 1-year 25-delta call + 2-year 25-delta put, (3) 1-year 75-delta
Consider the following 4 option portfolios:
(1) 1-year 25-delta put - 1-year 25-delta call,
(2) 1-year 25-delta call + 2-year 25-delta put,
(3) 1-year 75-delta call - 2-year 25-delta put,
(4) 2-year 40-delta call + 2-year 50-delta put.
(a) Which option portfolio leads to a delta-neutral position?
(b) Which portfolio leads to the longest delta position?
(c) Which portfolio leads to the shortest delta position?
(d) Which portfolio leads to a vega-neutral position?
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SOLUTION a To create a deltaneutral position we need to combine options with positive delta and nega...Get Instant Access to Expert-Tailored Solutions
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Fundamentals of Financial Management
Authors: Eugene F. Brigham, Joel F. Houston
12th edition
978-0324597714, 324597711, 324597703, 978-8131518571, 8131518574, 978-0324597707
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