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)A if the stock price increases and B if it decreases.
E)B if the stock price decreases and A if it increases.

Question

Quizplus · Accepted Answer

Portfolio B has a higher dollar exposure because it consists of 575 shares, while Portfolio A's exposure is 150 shares plus 300 calls with a delta of 0.7, which equals 360 shares (150 + 300*0.7). 575 shares is greater than 360 shares.

Portfolio a Consists of 150 Shares of Stock and 300