FRM Part I · FRM Exam Part I · Option Sensitivity Measures: The "Greeks"
A European put option on a non-dividend-paying stock has a Black-Scholes-Merton delta of N(d1) - 1. If N(d1) = 0.62, and a portfolio is short 2,000 of these puts, what is the portfolio delta in share equivalents?
The portfolio delta is +760 shares. Each put has delta of -0.38 (0.62 - 1), and being short 2,000 puts reverses the sign, giving 2,000 x 0.38 = +760, so the position gains when the stock rises.
- A+760Correct
- B-760
- C+1,240
- D-1,240
Explanation
Put delta = 0.62 - 1 = -0.38. Short 2,000 puts gives 2,000 x (-1) x (-0.38) = +760 shares. Using the call delta would give -1,240, which is wrong, and the sign error gives -760.
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