You own 9,500 shares of GO stock which is currently valued at $48 a share. The $50 put has a premium of $2.50 and a put delta of -.58. What position should you take in $50 put contracts to hedge your stock against a $1 decrease in price?

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Quizplus · Accepted Answer

To hedge against a $1 decrease in stock price, you need to offset the loss in stock value with gains from the put options. The delta of the put is -0.58, meaning each put option will gain $0.58 for every $1 decrease in stock price. You own 9,500 shares, so a $1 decrease results in a $9,500 loss. To offset this, you need 9,500 / 58 = 163.79, rounded to 163 contracts (since each contract covers 100 shares).

You Own 9,500 Shares of GO Stock Which Is Currently