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Suppose that JPMorgan Chase sells call options on $1.10 million worth of a stock portfolio with beta = 1.45. The option delta is .52. It wishes to hedge out its resultant exposure to a market advance by buying a market-index portfolio. Suppose it uses market index puts to hedge its exposure. Each put option is on 100 units of the index, and the index at current prices represents $1,000 worth of stock.
a. How many dollars’ worth of the market-index portfolio should it purchase to hedge its position (Omit the "$" sign in your response.) Market index portfolio $
b. What is the delta a put option? (Round your answer to 2 decimal places. Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.) The delta a put option is
c. Complete the following: (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.) Assuming the 1 percent market movement, JP Morgan should put contracts. Assume a market movement of 1 percent.
markets are in equilibrium
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Negative amount should be indicated by
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