delta hedge help

CFA Level II
#1

of options needed = # of shares / delta The book says if we have long position on stock, then we need to short call options. My question is if we have short position on stock, do we need to long call options? And in what situation we use put options to hedge? Thanks

#2

calls have positive delta between 0 and 1, puts have negative delta between -1 and 0 Example: long 10 calls with delta of 0.4 -> long 4 stocks long 10 puts with delta of -0.4 -> short 4 stocks I’m sure you can figure everything out from here …

#3

yes, you are correct. if you are short a stock you profit when its price goes down but get hurt when price goes up, so if you buy a long call that option hedges your downside (price up) if you are long a stock you can either short a call OR long a put… look up protective puts…

#4

If your short a stock, you can also SHORT a put

#5

first question: if you have 10m worth stock and you want to use delta hedge to neutralize this equity position from changes in the stock price. Is it considered as long stock or short stock? second question: i remember one question i did says (# of shares / delta) the numerator and denominator always have different sign. (correct me if i’m wrong) In this case, if you long stock (+) then you can either short call (cuz of positive delta) or long put (cuz of negative delta). So which one do you choose if both strategies are available?

#6

if you have 10M worth of stock, you would either sell calls or buy puts to the tune of 10M/delta. If you own 10M worth of stock you are long.