FMP Quiz of 20 questions word document

jinalasanghvi
Posts: 1
Joined: Wed Oct 03, 2012 6:04 pm

FMP Quiz of 20 questions word document

Postby jinalasanghvi » Wed Oct 03, 2012 6:07 pm

A trader in your bank has bought 200 call options contracts each on 100 shares of GM with time to maturity of 60 days at USD 2.10. The delta of the option on one share is 0.50. As a risk manager, what action must you take on the underlying stock in order to hedge the option exposure and keep it delta neutral?

a. Buy 10,000 shares of GM
b. Sell 10,000 shares of GM
c. Buy 1,000 shares of GM
D. Sell 1,000 shares of GM

The solution suggests it is A.

But shouldn't it be B since you are long options with positive delta?

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content.pristine
Finance Junkie
Posts: 356
Joined: Wed Apr 11, 2012 11:26 am

Re: FMP Quiz of 20 questions word document

Postby content.pristine » Wed Oct 03, 2012 6:24 pm

Hi Jingala,
This query has been answered already. Please take a look at the post:
post1655.html#p1655

8-)


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