Exam 17: The Greek Letters

A portfolio of derivatives on a stock has a delta of 2400 and a gamma of -100. An option on the stock with a delta of 0.6 and a gamma of 0.04 can be traded. i) What position in the option creates a portfolio that is gamma neutral? Give the size of position, and state whether it is long or short. _ _ _ _ _ _ ii) After this position has been taken, what position in the stock is then necessary for delta neutrality? Give the size of position, and state whether it is long or short. _ _ _ _ _ _

A trader uses a stop-loss strategy to hedge a short position in a three-month call option with a strike price of 0.7000 on an exchange rate. The trader covers the option when the exchange rate is 0.7005 and assumes a naked position when the exchange rate is 0.6995. The value of the option is 0.1. Estimate the expected number of times the trader covers the position during the life of the option. _ _ _ _ _ _

A European call and European put have the same strike price and time to maturity. Which two of the following are true? choose two)

A call option on an asset has a delta of 0.4. A trader has sold 2000 options and wants to create a delta-neutral position. i) Should the trader take a long or short position in the asset? _ _ _ _ _ _ ii) How many units of the asset should be bought or sold? _ _ _ _ _ _

Vega measures: choose one)

Gamma measures: choose one)

Theta measures: choose one)