0 Nidhi@10Beginner Asked: November 21, 20212021-11-21T18:29:31+05:30 2021-11-21T18:29:31+05:30In: Derivatives (CFA L2) DERIVATIVES 0 Share Sorry, you do not have permission to answer to this question. 1 Answer Oldest Sanjay Saraf Sir Founder | Faculty QFounder 2021-11-22T11:26:15+05:30Added an answer on November 22, 2021 at 11:26 am Suppose, delta of Call is 0.5 right now. Suppose we short 500 Calls and therefore, buy 500*0.5 i.e. 250 shares. Hence, our delta neutral portfolio is 500C- and 250 S+. Now suppose share price increases and therefore, delta of Call rises, say to 0.6. So, number of C- required against 250S+ = 250/0.6 = 416.67 But we are having 500 C- So, we have to repurchase 83.33 C+ in order to maintain delta neutrality.
Suppose, delta of Call is 0.5 right now.
Suppose we short 500 Calls and therefore, buy 500*0.5 i.e. 250 shares.
Hence, our delta neutral portfolio is 500C- and 250 S+.
Now suppose share price increases and therefore, delta of Call rises, say to 0.6.
So, number of C- required against 250S+ = 250/0.6 = 416.67
But we are having 500 C-
So, we have to repurchase 83.33 C+ in order to maintain delta neutrality.