Question

Delta of a call option is 0.85. Stock price is currently $50. How much money do you need to borrow to hedge a short position in 200 call contracts (each contract is for 100 shares of stock), provided that you finance the hedge entirely with borrowed funds

Answer 1

$850,000

Step-by-step explanation:

Call contracts*Call option*Share of stock*Stock price

= 200*0.85*100*50

= $850,000

Thus, we need to borrow $850,000