A stock options dealer, OD, shorts 1,000 uncovered calls. Every call covers 100 shares. What is...
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A stock options dealer, OD, shorts 1,000 uncovered calls. Every call covers 100 shares. What is the risk OD is facing? OD decides to Delta hedge the short calls. The calls premium is c = $5.00/share; their strike price is K= $50; they still have 15 weeks to expiration, T, and the calls' Delta is A = .65. Indicate the stock - calls Delta neutral position taken by OD. A week later the stock price decreased. Without any calculations, indicate how OD re adjusts the portfolio so as to neutralize the stock - calls position. OD continues to neutralize the stock - calls every week using Dynamic Delta hedging. When the calls expire at T, the stock price is S, = $48/share. Describe what happens at expiration and the cash flow to OD. A stock options dealer, OD, shorts 1,000 uncovered calls. Every call covers 100 shares. What is the risk OD is facing? OD decides to Delta hedge the short calls. The calls premium is c = $5.00/share; their strike price is K= $50; they still have 15 weeks to expiration, T, and the calls' Delta is A = .65. Indicate the stock - calls Delta neutral position taken by OD. A week later the stock price decreased. Without any calculations, indicate how OD re adjusts the portfolio so as to neutralize the stock - calls position. OD continues to neutralize the stock - calls every week using Dynamic Delta hedging. When the calls expire at T, the stock price is S, = $48/share. Describe what happens at expiration and the cash flow to OD.
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81 Risk OD is facing When OD shorts 1000 uncovered calls they are exposed to unlimited risk If the s... View the full answer
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