If you are an option trader and the way you make money is by trading volatility, how often do you need to delta hedge an option? A. Theoretically constantly as the underlying forward moves in the market. Practically you hedge as often as practicable. This is the art in trading. B. Just once at the beginning and then you leave it alone C. it depends on what asset class you are trading D. If you're a volatility trader you don't delta hedge

If you are an option trader and the way you make money is by trading volatility, how often do you need to delta hedge an option? A. Theoretically constantly as the underlying forward moves in the market. Practically you hedge as often as practicable. This is the art in trading. B. Just once at the beginning and then you leave it alone C. it depends on what asset class you are trading D. If you're a volatility trader you don't delta hedge

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter18: Auctions

Section: Chapter Questions

Problem 18.1IP

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Transactions to reduce downside risk are known as: *a. calls.b. options.c. puts.d. hedges.
As an investment advisor, you tell a client that an investment in a mutual fund has (over the next year) a higher expected return than an investment in the money market. The client then asks the following questions: a. Does that imply that the mutual fund will certainly yield a higher return than the money market? b. Does it follow that I should invest in the mutual fund rather than in the money market? How would you reply?
When you are long an option and you delta hedge, you want A. traders talking a lot about other asset classes and ignore your underlying B. volatility to increase and the underlying to move around a lot C. the cost of carry to narrow D. volatility to decrease and the underlying to just stop moving
You are thinking about purchasing an elegant shirt by mail. Shirts Galore offer an unlimited return policy while Over the Tops will refund 80 percent of the value of the shirt if you return it. Which of the following statements is most likely to be true? Select one: Shirts Galore's shirts are more likely to be high quality, while Over the Top's shirts are less likely to be high quality a. b. Both companies' shirts are more likely to be high quality С. Shirts Galore's shirts are less likely to be high quality, while Over the Top's shirts are more likely to be high quality d. neither company's shirts are more likely to be high quality
For a given option portfolio, you are long vega (value increases as volatility goes up), and short theta (as time passes your options portfolio loses money). Are you net long or short options? Net long, because as volatility goes up and it increases in value and as time passes you lose value. Net short, because as volatility goes up and it decreases in value and as time passes you increase value. not consistent you are long one and short the other, so can't tell completely independent derivatives, its apples and oranges and no reflection on your portfolio
Which of the following describes the attribute of a risk neutral investor? Select one: a. An investor that makes decisions based on the advice of financial planners. b. An investor that makes decisions based on the expected return of assets. C. An investor that makes decisions based on the credit rating of assets.
What is covariance, and why is it important in portfolio theory?
A risk-averse manager is considering a project that will cost £100. There is a 10 percent chance the project will generate revenues of £100, an 80 percent chance it will yield revenues of £50, and a 10 percent chance it will yield revenues of £500. Should the manager adopt the project? Explain. What will a risk-neutral and risk-loving manager do in the same situation?
Suppose you are considering buying $5,000 worth of Canada savings bonds (risk-free) and a portfolio of perfectly risk- balanced stocks so that the portfolio is also "risk-free". The stocks portfolio is "risk-free" because it has some stocks that rise in value during a recession (such as McDonald's, chocolate bars, etc.) and some stocks that fall in value during a recession (Samsung, Tesla, etc.) Both choices offer to pay a 5% annual return. However, you also know that 100% of interest income from bonds is taxed as regular income while only 50% of stock income is taxed as regular income. The discount rate you use to evaluate the stocks portfolio should be a. Equal to 5% b. Higher than 5% c. Lower than 5% d. Equal to your income tax rate.
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PATTS is deciding which of the two investments to take. Option A, total costs = $75,000,000 and the expected benefits = $95,000,000. Option B, total costs = $36,000,000 and the expected benefits = $60,000,000. Which option PATTS should choose?
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	A.	Theoretically constantly as the underlying forward moves in the market. Practically you hedge as often as practicable. This is the art in trading.
	B.	Just once at the beginning and then you leave it alone
	C.	it depends on what asset class you are trading
	D.	If you're a volatility trader you don't delta hedge