Gamma and vega are relatively small compared to delta

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Reference no: EM132065440

1) On Black Monday, October 19, 1987, the DJIA dropped by more than 20% intraday. Regulators believe portfolio insurance strategies where portfolio managers rapidly purchase out-of-the-money protective put options helped to accelerate the markets decline. Evaluate the italicized text. TRUE OR FALSE?

2) On August 24th, 2015, (#BlackMonday). The S&P500 suffered a 5.3% decline in the early minutes of trading, but thanks to limit-up/limit-down circuit breakers on exchange traded securities and trailing stop-loss orders, individual investors did not suffer more severe losses on ETFs. Evaluated the italizicized text. TRUE OR FALSE?

3) For a portfolio of at-the-money call options, the options sensitivity to gamma and vega are relatively small compared to delta. Despite this fact, more stock may need to be purchased or sold in order to neutralize a portfolio's gamma and vega as compared to the amount of stock that m portfolio's delta alone. Evaluate the italicized text. TRUE OR FALSE?

4) Assume a risk free rate of 0.0%. You own 100 shares of a stock currently valued at $50 per share. To protect your investment, you purchase 1 put option for $5 with a strike price of $45. At expiration, if the company declares bankruptcy, and the most money you can lose is $1000. Evaluate the italicized text. TRUE OR FALSE?

5) If you write a call option, you will need to purchase stock to make your position delta neutral. Evaluate the italicized text. TRUE OR FALSE?

Reference no: EM132065440

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