You Own 2,500 Shares of Jordan Co

question 46

Multiple Choice

You own 2,500 shares of Jordan Co.stock which is currently valued at $38 a share.The $40 put has a premium of $2.25 and a put delta of -0.25.What position should you take in $40 put contracts to hedge your stock against a $1 decrease in price?

• A) buy 100 contracts
• B) buy 1,000 contracts
• C) buy 10,000 contracts
• D) write 100 contracts
• E) write 1,000 contracts

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Definitions:

Frequent Trading

Frequent trading involves actively buying and selling securities, often several times within a single trading session, to capitalize on short-term market movements.

Inferior Returns

Returns on an investment that are lower than the benchmark or expected returns, often indicating underperformance.

NAV

Net Asset Value, the total value of a fund's assets minus its liabilities, often used in the context of mutual funds or ETFs to represent the per-share/unit price.

EMH

The Efficient Market Hypothesis suggests that it is impossible to consistently achieve higher returns than overall market due to all information being already reflected in stock prices.