Portfolio A consists of 600 shares of stock and 300 calls on that stock. Portfolio B consists of 685 shares of stock. The call delta is 0.3. 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
E) Portfolio B if the stock price increases, and portfolio A if it decreases

Question

Quizplus · Accepted Answer

Portfolio B has a higher dollar exposure to a change in stock price because it has more shares of stock. The call delta is a measure of how much the option's price will change for a given change in the stock price. In this case, the call delta is 0.3, which means that the option's price will increase by $0.30 for every $1 increase in the stock price. However, Portfolio B has 685 shares of stock, while Portfolio A has only 600 shares of stock. Therefore, Portfolio B has a higher dollar exposure to a change in stock price.

Portfolio a Consists of 600 Shares of Stock and 300