Course Name: Quantitative Trading Strategies and Models, Section No: 6, Unit No: 10, Unit type: Quiz
I'm having issues trying to replicate the answer, can you guys provide guidance? thanks in advance
Hi Sebastian,
The price of the call option (x) at S = $53 is $9.58, which is the sum price of the option at S = $52 and the value of the delta of options at S = $52 (as delta is the rate of change of option price w.r.t underlying).
The delta of options (y) at S = $53 is basically [0.69 (delta at S= $52) + 0.08 (gamma at S = $52)] * 2 as gamma is the rate of change of delta.
The portfolio delta (z) is the sum of the options delta and the stock delta, i.e. (1.54 - 1) = 0.54
Hope this helps!
in (y), why do you have to multiply by 2?
Because the portfolio is created with 2 lots of call option (as evident from the other rows in the table). This is primarily done to create a delta neutral portfolio initially.