CMA Final · Strategic Financial Management · Options
A call option on a share with strike ₹500 has a delta of 0.6. An investor holds 10,000 shares and wishes to be delta neutral by writing call options, each covering 100 shares. How many call option contracts must be written?
About 167 contracts must be written. Each contract has an effective delta of 60 shares (0.6 times 100), and offsetting 10,000 shares requires 10,000 divided by 60, which is roughly 167 contracts.
- A60
- B100
- C167Correct
- D1,000
Explanation
Delta per contract = 0.6 × 100 = 60 share-equivalents. Required contracts = 10,000 / 60 = 166.67, about 167. Using 10,000/100 = 100 ignores delta.
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