Options sellers who are delta-hedging would most likely
A)sell when markets are falling.
B)buy when markets are rising.
C)sell when markets are falling and buy when markets are rising.
D)sell whether markets are falling or rising.

Question

Quizplus · Accepted Answer

Delta-hedging involves adjusting the options portfolio to maintain a neutral position with respect to changes in the underlying asset's price (delta). When markets are falling, the delta of an options contract becomes more negative, meaning options sellers would need to sell underlying assets (or buy put options) to maintain a neutral position. Conversely, when markets are rising, the delta of an options contract becomes more positive, so options sellers would need to buy underlying assets (or sell call options) to maintain a delta-neutral position. Therefore, options sellers who are delta-hedging would sell when markets are falling and buy when markets are rising, as indicated in choice C.

Options Sellers Who Are Delta-Hedging Would Most Likely