Hedge portfolio risk by option; Book 7, Exam 1 Q53, 54

Background for 53, 54: The portfolio manager has a large position in the stock of BIC. He expects the price to increase, but want to hedge the risk of negtive surprise. 53, What is the most effective option strategy to hedge the risk? A. Add call options to the portfolio as the option delta moves closer to Zero B. … further away from Zero C. Add put options to the portfolio as the option delta moves further away from Zero. D. … closer to Zero. What does Add mean? It mean buy or sell? Tha answer is D. Feel confused. -------------------------------------------------------------------------------------------------- 54, a guy suggests to buy put option to manage the risk. he further recommends waiting untill the vega on the options rise, because that will make the options less attractive and cheeper to purchase. Is the guy correct? The answer is Yes. I agree with him to buy put option. However, for the vega, which refers to the sensitivity of option price to the changes in the volatility of returns on the underlying asset, I did not agree. Vega increase, keeping everything else constant, the option price should be higher. Can anyone please explain the answer?

If you want to go to the source, the guys (David Eckstrom) who wrote Bk 7 are holding Office Hours on the Schweser website May 29 from 7-9 pm EST

He owns stock, therefore has a long position and he is afraid that position will lose value and therefore to protect himself, will buy a put( this is called protective put)… so you will add a put options to hedge the long position