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)Portfolio A if the stock price increases and portfolio B if it decreases

Question

Quizplus · Accepted Answer

Portfolio B has a higher dollar exposure to a change in stock price because it has 500 shares of stock, while Portfolio A has only 400 shares of stock. The call delta is 0.5, which means that each call option has an exposure of 0.5 shares of stock. Therefore, Portfolio A has an exposure of 400 + (400 * 0.5) = 600 shares of stock, while Portfolio B has an exposure of 500 shares of stock.

Portfolio a Consists of 400 Shares of Stock and 400