Question #84

Reading: Reading 31 Valuation of Contingent Claims

PDF File: Reading 31 Valuation of Contingent Claims.pdf

Page: 40

Status: Unattempted

Correct Answer: A

Part of Context Group: Q84-86 First in Group
Shared Context
- Which of the following most accurately describes when the call option delta reaches its minimum bound? The call option reaches its minimum bound when call option is: A) at the money. B) the option's delta has no minimum bound. C) far out of the money.
Question
If the portfolio has 10,000 shares of the underlying stock and he wants to completely hedge the price risk using options, what kind of options should Franklin buy?
Answer Choices:
A. Call and put options
B. Call options
C. Put options
Explanation
Buying put options will allow Franklin to completely hedge the stock price risk.
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