The S&P 500 is currently trading at 1,040. Call options with a strike price of 1,075 and a delta of 0.25 are available. If you want to hedge portfolio with a value of $300 million and a beta of 1.10, how many options should you write?
A) 12,843
B) 12,503
C) 12,692
D) 12,386
E) 12,279

Question

Quizplus · Accepted Answer

To hedge the portfolio, calculate the number of options using the formula: (Portfolio Value * Beta) / (Option Delta * Strike Price). This gives (300,000,000 * 1.10) / (0.25 * 1,075) = 12,692 options.

The S&P 500 Is Currently Trading at 1,040