Portfolio A consists of 400 shares of stock and 400 calls on that stock.Portfolio B consists of 500 shares of stock.The call delta is 0.5.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 A has a total of 800 delta exposure (400 shares x 1 delta per share + 400 calls x 0.5 delta per call = 800 delta). Portfolio B has a total of 500 delta exposure (500 shares x 1 delta per share = 500 delta). Therefore, portfolio A has a higher dollar exposure to a change in stock price compared to portfolio B.

Portfolio a Consists of 400 Shares of Stock and 400