You own 400 shares of a stock that is trading at $25 per share. You find on the market a put option on this share trading at $6.25 with a beta of 0.5. You are afraid the stock price can go down in the short-term but do not wan to sell it. 

Explain which trade you should make to implement a delta hedge of your position. The stock price goes down by 5.00%: prove that your hedge is effective?

Answer rating: 100% (QA)

To implement a delta hedge we need to calculate the delta of the put option which represents the sen... View the full answer