You are holding call options on a stock. The stock’s beta is 0.65, and you are concerned that the stock market is about to fall. The stock is currently selling for $10 and you hold 1 million options (i.e., you hold 10,000 contracts for 100 shares each). The option delta is 0.70. How much of the market-index portfolio must you buy or sell to hedge your market exposure? Note: Enter your answer in dollar not in millions.
You are holding call options on a stock. The stock’s beta is 0.65, and you are concerned that the stock market is about to fall. The stock is currently selling for $10 and you hold 1 million options (i.e., you hold 10,000 contracts for 100 shares each). The option delta is 0.70. How much of the market-index portfolio must you buy or sell to hedge your market exposure? Note: Enter your answer in dollar not in millions.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter2: Risk And Return: Part I
Section: Chapter Questions
Problem 15MC
Question
You are holding call options on a stock. The stock’s beta is 0.65, and you are concerned that the stock market is about to fall. The stock is currently selling for $10 and you hold 1 million options (i.e., you hold 10,000 contracts for 100 shares each). The option delta is 0.70. How much of the market-index portfolio must you buy or sell to hedge your market exposure?
Note: Enter your answer in dollar not in millions.
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