Might get long-winded. Stick with me, because it may help you too. CFAI book five, pg 457 is discussing how dealers delta hedge their short options positions. It says: “Let us say that we sell call options on 200 shares (this quantity is 2 standardized call contracts on an options exchange) and the delta is 0.5. We would, therefore, need to hold 200(0.5) = 100 shares.” So, they say to multiply the number of SHARES short through options contracts by the delta. Then, in part A the example on CFAI pg 463, the dealer is short 500 OPTIONS (so 50,000 shares), and they multiply 500 by delta to get the delta hedge. Why not multiply 50,000 by delta?? That is the number of shares short through options contracts. Is it just poor wording in the example, and by “500 options” they mean options on 500 shares, not 500 contracts?
DC Zanini, Agree with you. Its better for you to send inquiry to CFAI for a clarification.
you guys lost me. p 457 delta 0.5 – need to hold 0.5 share for each option or vice versa. p 463 delta .6564 --> need to hold .6564 share for each option or vice versa --> 500 options --> need 500*.6564= 328 shares as given. where is the 50 000 shares you are talking about? what is the confusion?
I feel funny about myself !