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

Question

Quizplus · Accepted Answer

Delta-hedging involves adjusting the portfolio's position in the underlying asset in order to keep the delta of the option position neutral. This means that options sellers who are delta-hedging would sell when markets are falling in order to reduce the delta of their overall position, and buy when markets are rising in order to increase the delta of their overall position. Therefore, both options A and B are correct, and the best answer is choice C. Options sellers who are delta-hedging will actively trade their underlying asset to maintain a delta-neutral position, regardless of whether markets are rising or falling.

Options Sellers Who Are Delta-Hedging Would Most Likely