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Delta-hedged portfolio

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Reference no: EM131721

Question 1. Apple stock (ticker: AAPL) is currently at $415/share, while Google stock (ticker: GOOG) is currently at $835/share. Consider the following options:

_ Option A: A one-month call option to buy Apple stock at a strike of $415. Cost: CA

_ Option G: A one-month call option to buy Google stock at a strike of $835. Cost: CG

_ Option AG: A one-month call option to buy a package of one share each of Apple and Google at a strike of $1,250. Cost:CAG.

Which of the following alternatives is most correct?

(a) CAG > CA + CG.

(b) CAG < CA + CG.

(c) CAG = CA + CG.

(d) Any of the above is possible.

Question 2. A stock is trading at $80. You hold a delta-hedged portfolio in which you are short a call and long _ units of the stock. The delta of the call is 0.65 and the gamma of the call is 0.06. If the stock registers an unexpected price decrease of $4, the value of your delta-hedged portfolio will

(a) not change.

(b) decrease by approximately $0.12.

(c) increase by approximately $0.48.

(d) decrease by approximately $0.48.

(e) increase by approximately $0.12.

Reference no: EM131721

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