Mark Washington, CFA, is an analyst with BIC. One year ago, BIC analysts predicted that the U.S. equity market would most likely experience a slight downturn and suggested delta-hedging the BIC portfolio. As predicted, the U.S. equity markets did indeed experience a downturn of approximately 4% over a 12-month period. However, portfolio performance for BIC was disappointing, lagging its peer group by nearly 10%. Washington has been told to review the options strategy to determine why the hedged portfolio did not perform as expected. Washington considers a put option that has a delta of −.65. If the price of the underlying asset decreases by $6, then what is the best estimate of the change in option price?
Mark Washington, CFA, is an analyst with BIC. One year ago, BIC analysts predicted that the U.S. equity market would most likely experience a slight downturn and suggested delta-hedging the BIC portfolio. As predicted, the U.S.
equity markets did indeed experience a downturn of approximately 4% over a 12-month period.
However, portfolio performance for BIC was disappointing, lagging its peer group by nearly 10%.
Washington has been told to review the options strategy to determine why the hedged portfolio did not perform as expected.
Washington considers a put option that has a delta of −.65. If the price of the underlying asset decreases by $6, then what is the best estimate of the change in option price?
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