You own 1,300 shares of ABC stock that is currently priced at $36 a share. Given this price, the option delta for a $34 call option on this stock is .724. How many $34 call options do you need to hedge against a −$1 change in the price of the stock?
A)buy 1,570 options
B)buy 2,072 options
C)write 1,769 options
D)write 2,072 options
E)write 2,439 options

Question

Quizplus · Accepted Answer

To hedge against a -$1 change in the stock price, you need to write options such that the change in the option position offsets the change in the stock position. The number of options needed is calculated as: 1,300 shares / 0.724 delta ≈ 1,796 options. The closest choice is to write 1,769 options.

You Own 1,300 Shares of ABC Stock That Is Currently