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Suppose that you sell portfolio insurance to a customer and establish a delta-neutral portfolio by trading the underlying stock. If the stock market falls over
Suppose that you sell portfolio insurance to a customer and establish a delta-neutral portfolio by trading the underlying stock. If the stock market falls over the next trading day, how would you adjust your stock position to remain delta-neutral?
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Sell shares.
Buy shares.
Do nothing. Your original stock position is still delta-neutral.
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