You have a stock market portfolio with a beta of 0.9 that is currently worth $72
ID: 2647744 • Letter: Y
Question
You have a stock market portfolio with a beta of 0.9 that is currently worth $725 million. You wish to hedge against a decline using index options. Suppose you decide to use SPX calls. Calculate the number of contracts needed if the call option you pick has a delta of 0.4, and the S&P 500 Index is at 1,160. (Writing options should be indicated by a minus sign. Round your answer to the nearest whole number.)
You have a stock market portfolio with a beta of 0.9 that is currently worth $725 million. You wish to hedge against a decline using index options. Suppose you decide to use SPX calls. Calculate the number of contracts needed if the call option you pick has a delta of 0.4, and the S&P 500 Index is at 1,160. (Writing options should be indicated by a minus sign. Round your answer to the nearest whole number.)
Explanation / Answer
Number of index option needed to hedge completely = Value of holding / (Index Level * Contract Multiplier)
= 725,000,000 / ( 1160 * 100 ) = 6250 number of contracts required
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