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
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. Portfolio A's exposure is calculated as the sum of the delta-adjusted exposure of the calls (300 calls * 0.7 = 210 equivalent shares) and the 150 shares, totaling 360 equivalent shares. Portfolio B, with 575 shares, has a higher exposure to stock price changes.

Portfolio a Consists of 150 Shares of Stock and 300