Question: Suppose that Scotia Capital sells call options on 1 25
Suppose that Scotia Capital sells call options on $ 1.25 million worth of a stock portfolio with beta = 1.5. The option delta is .8. It wishes to hedge out its resultant exposure to a market advance by buying market index futures contracts. If the current value of the market index is 1,000 and the contract multiplier is $ 250, how many contracts should it buy?
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