Market-Index Portfolio Assignment
February 19th, 2020
You are holding call options on a stock. The stock’s beta is 0.86, and you are concerned that the stock market is about to fall. The stock is currently selling for $22 and you hold 1 million options on the stock (i.e., you hold 10,000 contracts for 100 shares each). The option delta is 0.95. How much of the market-index portfolio must you buy or sell to hedge your market exposure? (Enter your answer in dollar not in millions.)
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