Chapter 05 · Section 5.1

Change in the Delta Factor

If the hedger instead considered a put with a delta factor of -0.25: How many contracts would he need to delta hedge his stock position?

a) 2
b) 4
• c) 25
  No. A delta of -0.25 implies that if the underlying goes up by 1, the premium will go down by 0.25. If a hedger wants the underlying and the premium to offset each other, he needs 4 contracts.

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