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:
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:
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
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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).
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