# Derivatives- Delta hadge + Schweser practise exam 3

Im having trouble understanding delta hedging. If delta is .85 and I am long 1000 SHARES, how many calls do I have to buy to hedge my position? What is the general formula?

Also Practise exam 3 volume 1 Morning session # 37 the formula for the arch= (1.04-.87)/(1.15-.87). Isnt the .87 suppose to be .85? what am I missing? Thanks

pretty sure the formula is number of options x delta = number of shares, or

number of shares / delta = number of options.

you always need more options than shares (this is a useful check to see if you’ve done it the right way round)

You need 1000/0.85 call options. Divide this by 100 if they are counting the multiplier.

Thanks. It seems a bit confusing when you think of Delta= Change in option price/ change in stock price. but i guess they are two different concepts.

huh? it’s the same concept…

think about that formula, it’s measuring how much the option price changes compared to how much the stock price changes.

that ratio tells you how many options or shares you need to hedge the other

I meant one shows how much the option/stock price changes, and the other formula shows how many option or stock to buy…