You own a portfolio of options in a company, which will have its earnings announced during the week. You decided to take a position in shares that should minimize the risk of loss if the price of moves adversely.

(a) What is the number of shares that you sold or purchased? How does it relate to the risk sensitivities of your options portfolio? Give an example to illustrate your reasoning. (b) Because in a couple days is earnings announcement day, we expected the price of the stock to move significantly after-hours. Is your hedging strategy a good strategy? (Note: your answer should depend on the risk sensitivities of your options portfolio) (c) After analyzing your risk sensitivities, you realize that you probably will not make too much money if the price of the company moves significantly. To counter this, you decide to buy a considerable number of calls and puts with opposite to the company in such a way that you remain hedged as before. What should the effect of this decision be on your risk sensitivities? How does the time decay of your portfolio change?