A Stock Is Trading at $80 $\Delta$ Units of the Stock

question 23

Multiple Choice

A stock is trading at $80.You hold a delta-hedged portfolio in which you are short a call and long $\Delta$ 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.

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Definitions:

Average Revenue

The amount of revenue a company receives per unit of sales, calculated by dividing total revenue by the number of units sold.

Market Equilibrium

A condition in which market supply and demand balance each other, and as a result, prices become stable.

Competitive Industry

A competitive industry is one where numerous producers compete with each other to satisfy the needs and wants of consumers, characterized by free entry and exit and a high level of innovation.

Market Demand

The total quantity of a good or service that consumers are willing and able to purchase at various prices during a specific time period.