What is net dollar gain or cost required to create a short put delta hedge against a 100 short put position? Assume puts are priced at $1.98,the delta is 0.489,the stock price is $34.50,and no cost to short stock.
A) $1,540.50 gain
B) $1,540.50 cost
C) $2,319.58 gain
D) $2,319.58 cost

Question

Quizplus · Accepted Answer

To create a short put delta hedge against a 100 short put position, we need to buy 49 delta puts, i.e., 49 puts with a delta of 0.489. 
The net dollar cost of buying these puts is calculated as follows:

Net Cost = Number of Puts x Put Price x 100 x - Delta
Net Cost = 49 x $1.98 x 100 x -0.489
Net Cost = -$4,793.58

Since we are short the puts, we receive a premium of $1.98 x 100 = $198 per contract, or $19,800 for the entire position. This premium offsets part of the cost of the hedge.

Net Dollar Gain = Premium Received - Net Cost
Net Dollar Gain = $19,800 - (-$4,793.58)
Net Dollar Gain = $24,593.58

Therefore, the net dollar gain required to create a short put delta hedge against a 100 short put position is $2,319.58 (Choice C).

What Is Net Dollar Gain or Cost Required to Create