You want to hedge a stock portfolio with a beta 0.95 and a value of $150 million with S&P 500 call options. The options have a strike price of 1,100 and a delta of 0.62. If the index is currently trading at 1,128, how many options should you write?
A) 1,996
B) 2,089
C) 2,147
D) 2,193
E) 2,038

Question

Quizplus · Accepted Answer

To hedge the portfolio, you need to calculate the number of options to write by using the formula: (Beta * Portfolio Value) / (Delta * Strike Price). Here, it's (0.95 * $150,000,000) / (0.62 * 1,100) = $203,788,043.29 / $682 = approximately 2,038 options.

You Want to Hedge a Stock Portfolio with a Beta