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

question 57

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 .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:

Cost of Equity

The yield a company needs to determine whether an investment satisfies its capital return criteria.

Risk-Free Rate

The expected return on an investment that carries no risk, often shown through the yield of government bonds.

Expected Stock Market Return

The predicted average return of the stock market or a specific segment of it over a specific period, considering historical trends and market conditions.

Dividends

Payments made by a corporation to its shareholder members, distributed from the company's profits.