# 2012 AM session Q9a ii

Info: James Delport is an options trader at a large bank. He sold to a client one-month put options on 2,000 shares of an underlying equity. The options have an exercise price of 1,300 euros (EUR) and an option premium of EUR 19.09 per share. The underlying equity is trading at EUR 1,340 per share.
The options were priced using a volatility of 24%. Delport calculates the delta of the options to be –0.3088.

Q: ii. Calculate the number of shares he should trade. Show your calculations.

A: Delport’s current exposure from selling the put options = # contracts × spot price × option delta
= –2,000 × \$1,340 × –0.3088
= \$827,584 (long)

If each contract is for 100 shares why are we not dividing the 2,000 by 100?

If they don’t specify that 1 contract = 100 shares, then don’t make that assumption.

are you sure 2012 Q9 is still applicable ?

Per Schweser’s relevancy file it is. Also, looking at the question pretty sure it is.

Thank you

Actually, delta hedging is not relevant anymore for Level 3 (this is kept to Level 2)

You do, however, need to be able to evaluate the portfolio delta, gamma, vega, theta of option strategies.