You own 4,800 shares of a stock that is currently priced at $34 a share. Given this price, the option delta for a $30 call option on this stock is .955. How many $30 call option contracts do you need to hedge against a −$1 change in the price of the stock?
A)buy 50 option contracts
B)buy 503 option contracts
C)write 50 option contracts
D)write 503 option contracts
E)write 5,026 option contracts

Question

Quizplus · Accepted Answer

To hedge against a -$1 change in the stock price, you need to write option contracts. The delta of the option is 0.955, meaning each option contract (which covers 100 shares) will change by $95.50 for a $1 change in stock price. To hedge 4,800 shares, you need to write 50 option contracts (4,800 / (0.955 * 100)).

You Own 4,800 Shares of a Stock That Is Currently