managing a hedge fund; the value of 300 million, and a beta of 1.07; I am...
managing a hedge fund; the value of 300 million, and a beta of 1.07; I am concerned about the market decline and wish to HEDGE portfolio. decided to use SPX CALLS. how many contracts do I need if the delta of a call option is 0.62 and the S&P INDEX IS CURRENTLY AT 2,030?
Homework Answers
number of option contracts = - (fund value*fund beta)/(contract value*option delta)
(Call contracts are denoted with a -ive sign)
Fund value = $300 million
Given that one contract value is $250 times the index value, contract value = S&P index value *$250
Number of option contracts = -(300,000,000*1.07)/(0.62*2030*250) = -1,020.2 or 1,021 contracts (Answer)
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