DCC exports high-speed digital switching networks, and their largest and most important clients are in Asia. A recent financial crisis in Asia has diminished the prospects of new sales to the Asian market in the near term. However, you believe that DCC is a good investment for the long term. Suppose you hold 1,000 shares of DCC and the following two options are available in the market: (a) Call A: Delta = 0.6674, Gamma = 0.0176 (b) Call B: Delta = 0.574, Gamma = 0.019 What should be the options holdings if the combined stock and options portfolio is both delta and gamma-neutral (up to two decimals)? Assume that one option contract is based on 100 units of the stock. O a. Short 73.7 contracts of Call A and long 68.27 contracts of Call B O b. Long 73.7 contracts of Call A and short 68.27 contracts of Call B O c. Short 68.27 contracts of Call A and short 73.7 contracts of Call B O d. Long 73.7 contracts of Call A and long 68.27 contracts of Call B
DCC exports high-speed digital switching networks, and their largest and most important clients are in Asia. A recent financial crisis in Asia has diminished the prospects of new sales to the Asian market in the near term. However, you believe that DCC is a good investment for the long term. Suppose you hold 1,000 shares of DCC and the following two options are available in the market: (a) Call A: Delta = 0.6674, Gamma = 0.0176 (b) Call B: Delta = 0.574, Gamma = 0.019 What should be the options holdings if the combined stock and options portfolio is both delta and gamma-neutral (up to two decimals)? Assume that one option contract is based on 100 units of the stock. O a. Short 73.7 contracts of Call A and long 68.27 contracts of Call B O b. Long 73.7 contracts of Call A and short 68.27 contracts of Call B O c. Short 68.27 contracts of Call A and short 73.7 contracts of Call B O d. Long 73.7 contracts of Call A and long 68.27 contracts of Call B
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:DCC exports high-speed digital switching networks, and their largest and most important clients are in
Asia. A recent financial crisis in Asia has diminished the prospects of new sales to the Asian market in
the near term. However, you believe that DCC is a good investment for the long term. Suppose you
hold 1,000 shares of DCC and the following two options are available in the market:
(a) Call A: Delta = 0.6674, Gamma = 0.0176
(b) Call B: Delta = 0.574, Gamma = 0.019
What should be the options holdings if the combined stock and options portfolio is both delta and
gamma-neutral (up to two decimals)? Assume that one option contract is based on 100 units of the
stock.
O a. Short 73.7 contracts of Call A and long 68.27 contracts of Call B
O b. Long 73.7 contracts of Call A and short 68.27 contracts of Call B
Short 68.27 contracts of Call A and short 73.7 contracts of Call B
O d. Long 73.7 contracts of Call A and long 68.27 contracts of Call B
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