You Own 5,000 Shares of Miller Stock, Which Is Currently

question 59

Multiple Choice

You own 5,000 shares of Miller stock, which is currently, valued at $37 a share. The $40 put has a premium of $2.30 and a put delta of −.25. What position should you take in $40 put contracts to hedge your stock against a $1 decrease in price?

• A)buy 200 contracts
• B)buy 1,200 contracts
• C)buy 20,000 contracts
• D)write 200 contracts
• E)write 1,200 contracts

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Definitions:

Relative Percentages

A statistical measure that represents a portion of a whole as a percentage relative to another quantity.

Price Inelastic

A characteristic of goods for which demand does not significantly change with a change in price.

Demand

The desire and ability of consumers to purchase goods and services at different prices, reflecting the relationship between price levels and quantity demanded.

Rising Health Care Costs

The increasing expense associated with medical services and products, affecting individuals, families, businesses, and governments.