Two call options have the same delta but option A has a higher gamma than option B. When the price of the underlying asset increases, the number of option A calls necessary to hedge the price risk in 100 shares of stock, compared to the number of option B calls, is a: A) smaller (negative) number. B) larger (negative) number. C) larger positive number. D) smaller positive number.
Since A has a higher gamma, delta will be increasing faster than option B, so I’m going answer A.
me too A
you know, i think i’m spacing. you’re selling calls, so it’d be a neg. number. so it would be A. am i even in the ballpark?
A has got to be right. Ex. Delta A and B = .5 A will increase more than B due to higher gamma New Delta: A = .6 B = .55 Number of calls to write A = 100/.6 = 167 B = 100/.55 = 182 Both are negative since you are writing calls . . . smaller negative number. EDIT: If I am wrong I will be so pissed.
it’s right. i was spacing. why the hell would i buy calls to hedge a long position? that eliminates the last two. and it’s just as you have laid out above.
i go for A too to hedge you need to sell calls
A it is.