A stock is currently trading at €40. An investor holds the following portfolio, long 250 shares of stock; short 150 put options on the stock with an exercise price of €35; and long 150 calls on the stock with an exercise price of €45. The following information is available: Price, € 6.271 0.650 3.023 1.996 1.210 4.995 Instrument Call X = €35 Put X = €35 Call X = €40 Put X = €40 Call X = €45 Put X = €45 i. ii. Delta 0.723 -0.197 0.565 -0.435 0.297 -0.693 Gamma 0.048 0.048 0.057 0.057 0.049 0.049 Theta -4.522 -3.153 -5.912 -3.996 -5.493 -2.581 What is the delta, the gamma and the theta of the portfolio? The investor decides to make the portfolio both gamma neutral and delta neutral. How is this accomplished using the Call with an exercise price of €40? What is the cost of this rebalancing of the investor's position? iii. Using the information in the table above what is the delta and gamma of a protective put portfolio with an exercise price (X= €45)

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
Question

Aa 32.

A stock is currently trading at €40. An investor holds the following
portfolio, long 250 shares of stock; short 150 put options on the
stock with an exercise price of €35; and long 150 calls on the stock
with an exercise price of €45.
The following information is available:
Price, €
6.271
0.650
3.023
1.996
1.210
4.995
i.
Instrument
Call X = €35
Put X = €35
Call X = €40
Put X = €40
Call X = €45
Put X = €45
ii.
Delta
0.723
-0.197
0.565
-0.435
0.297
-0.693
Gamma
0.048
0.048
0.057
0.057
0.049
0.049
Theta
-4.522
-3.153
-5.912
-3.996
-5.493
-2.581
What is the delta, the gamma and the theta of the portfolio?
The investor decides to make the portfolio both gamma neutral
and delta neutral. How is this accomplished using the Call
with an exercise price of €40? What is the cost of this
rebalancing of the investor's position?
iii. Using the information in the table above what is the delta and
gamma of a protective put portfolio with an exercise price (X =
€45).
Transcribed Image Text:A stock is currently trading at €40. An investor holds the following portfolio, long 250 shares of stock; short 150 put options on the stock with an exercise price of €35; and long 150 calls on the stock with an exercise price of €45. The following information is available: Price, € 6.271 0.650 3.023 1.996 1.210 4.995 i. Instrument Call X = €35 Put X = €35 Call X = €40 Put X = €40 Call X = €45 Put X = €45 ii. Delta 0.723 -0.197 0.565 -0.435 0.297 -0.693 Gamma 0.048 0.048 0.057 0.057 0.049 0.049 Theta -4.522 -3.153 -5.912 -3.996 -5.493 -2.581 What is the delta, the gamma and the theta of the portfolio? The investor decides to make the portfolio both gamma neutral and delta neutral. How is this accomplished using the Call with an exercise price of €40? What is the cost of this rebalancing of the investor's position? iii. Using the information in the table above what is the delta and gamma of a protective put portfolio with an exercise price (X = €45).
Expert Solution
steps

Step by step

Solved in 5 steps

Blurred answer
Knowledge Booster
Options
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education