You Own 4,800 Shares of a Stock That Is Currently

question 56

Multiple Choice

You own 4,800 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 0.955.How many $30 call option contracts do you need to hedge against a -$1 change in the price of the stock?

• A) buy 50 option contracts
• B) buy 503 option contracts
• C) write 50 option contracts
• D) write 503 option contracts
• E) write 5,026 option contracts

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Definitions:

Moral Hazard

A situation where one party is more likely to take risks because the negative consequences of the risk are borne by another party.

Health Insurance

A type of insurance coverage that pays for medical and surgical expenses incurred by the insured, often providing a hedge against financial risks arising from healthcare costs.

Adverse Selection

A situation in economics where one party in a transaction has more information than the other, often leading to inefficiencies and potentially flawed market outcomes.

Insurance Companies

Businesses that offer financial protection against various risks to individuals and entities.