An Introduction to Options Trading by Frans de Weert

Author:Frans de Weert
Language: eng
Format: epub, pdf
Publisher: Wiley
Published: 2011-02-13T16:00:00+00:00

• day 0 $10

• day 1 $9

• day 2 $8.50

• day 3 $9

• day 4 $10

7.2 DYNAMIC HEDGING OF A SHORT CALL OPTION

Again, consider a stock which has a price of $10. The price of a call option on this stock with a strike price of $12 is $4. The delta of this particular call option is 0.40, the gamma is 0.02, and the theta is – 0.01 per day. The following portfolio is put together:• short 1 call option for $4;

• long 0.40 stocks for $10 each.

The aim of this section is to identify the profit of this portfolio for the following price trend of the underlying stock, when the portfolio is made delta-neutral every dollar and every 2 dollars, respectively:

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