Assume the Black-Scholes framework. Yesterday, you sold a European call option on a nondividendpaying stock. You immediately
Question:
Assume the Black-Scholes framework. Yesterday, you sold a European call option on a nondividendpaying stock. You immediately delta-hedged the commitment with shares of the stock.
Today, you decide to close out all positions.
Which of the following statements about your delta-hedged portfolio today is incorrect?
(A) Your delta when today’s stock price is $50 is (approximately) zero.
(B) Stock price risk is not completely eliminated.
(C) You lose from large stock price moves in either direction.
(D) The larger the stock price today, the smaller your delta.
(E) Your gamma is a negative constant.
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In the BlackScholes framework delta represents the sensitivity of the derivatives price to changes in the underlying stock price When you deltahedge a ...View the full answer
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