Portfolio A consists of 150 shares of stock and 300 calls on that stock.Portfolio B consists of 575 shares of stock.The call delta is 0.7.Which portfolio has a higher dollar exposure to a change in stock price?
A)Portfolio B
B)Portfolio A
C)The two portfolios have the same exposure.
D)Portfolio A if the stock price increases and portfolio B if it decreases

Question

Quizplus · Accepted Answer

To determine the dollar exposure to a change in stock price, we need to calculate the delta-adjusted value of each portfolio. 
For Portfolio A: 
Stock delta = 1 x 150 = 150 
Option delta = 0.7 x 300 = 210 
Total delta = 150 + 210 = 360 
So Portfolio A has a delta-adjusted value of 360. 
For Portfolio B: 
Stock delta = 1 x 575 = 575 
Portfolio B does not have any options, so its delta-adjusted value is 575. 
Since Portfolio B has a higher delta-adjusted value, it has a higher dollar exposure to a change in stock price. Therefore, the best answer is A [Portfolio B].

Portfolio a Consists of 150 Shares of Stock and 300