You Own 3,550 Shares of a Stock That Is Currently

question 26

Multiple Choice

You own 3,550 shares of a stock that is currently priced at $34 a share. Given this price, the option delta for a $30 call option on this stock is .923. How many $30 call option contracts do you need to hedge against a −$1 change in the price of the stock?

• A)buy 4 option contracts
• B)buy 38 option contracts
• C)write 4 option contracts
• D)write 38 option contracts
• E)write 385 option contracts

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Definitions:

Factory Overhead Account

An account that aggregates all indirect manufacturing costs, such as utilities and maintenance, associated with producing goods in a factory.

Applied Overhead

The process of allocating estimated overhead costs to specific jobs or production units based on a predetermined rate or formula.

Incurred

Refers to costs or expenses that have been consumed, used, or sustained in conducting business activities.

Overapplied Overhead

A situation where the applied manufacturing overhead cost is more than the actual overhead cost incurred, resulting in a need for adjustment in accounting records.