Suppose that JPMorgan Chase sells call options on $1.60 million worth of a stock portfolio with beta = 1.95. The option delta is 0.76. It wishes to hedge its resultant exposure to a market advance by buying a market-index portfolio. Suppose it use market index puts to hedge its exposure. The index at current prices represents $1,000 worth of stock. a. How many dollars' worth of the market-index portfolio should it purchase to hedge its position? Market index portfolio $ 2,371,200 b. What is the delta of a put option? (Round your answer to 2 decimal places. Negative amount should be indicated by a minus sign.) Delta (0.24) c. Complete the following: (Negative amount should be indicated by a minus sign.) Assuming the 1 percent market movement, JP Morgan should put contracts.
Suppose that JPMorgan Chase sells call options on $1.60 million worth of a stock portfolio with beta = 1.95. The option delta is 0.76. It wishes to hedge its resultant exposure to a market advance by buying a market-index portfolio. Suppose it use market index puts to hedge its exposure. The index at current prices represents $1,000 worth of stock. a. How many dollars' worth of the market-index portfolio should it purchase to hedge its position? Market index portfolio $ 2,371,200 b. What is the delta of a put option? (Round your answer to 2 decimal places. Negative amount should be indicated by a minus sign.) Delta (0.24) c. Complete the following: (Negative amount should be indicated by a minus sign.) Assuming the 1 percent market movement, JP Morgan should put contracts.
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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Could you help me with question c) please?
Transcribed Image Text:Suppose that JPMorgan Chase sells call options on $1.60 million worth of a stock portfolio with beta = 1.95. The option delta is 0.76. It
wishes to hedge its resultant exposure to a market advance by buying a market-index portfolio. Suppose it use market index puts to
hedge its exposure. The index at current prices represents $1,000 worth of stock.
a. How many dollars' worth of the market-index portfolio should it purchase to hedge its position?
Market index portfolio
$
2,371,200
b. What is the delta of a put option? (Round your answer to 2 decimal places. Negative amount should be indicated by a minus
sign.)
Delta
(0.24)
c. Complete the following: (Negative amount should be indicated by a minus sign.)
Assuming the 1 percent market movement, JP Morgan should
put contracts.
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