You have an equity portfolio valued at $1.55 million that has a beta of 1.21.You have decided to hedge this portfolio using SPX call option contracts.The S&P 500 index is currently 1457.The option delta is .6435.How many option contracts must you write to effectively hedge your portfolio?

Question

Quizplus · Accepted Answer

To hedge the portfolio, calculate the number of contracts using the formula: (Portfolio Value * Portfolio Beta) / (Index Value * Option Delta * Contract Multiplier). Here, the contract multiplier is typically 100. So, ($1,550,000 * 1.21) / (1457 * 0.6435 * 100) = 20 contracts.

You Have an Equity Portfolio Valued at $1