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Hi sir
In the above qu, we are asked to estimate the number of put option contract needed to hedge against the share price movement
We are told that the delta of a put option is equivalent to N(-d1)….
Can we use the delta hedge formula here…eg number of put contracts needed = number of shares/N(-d1)….or does that formula only work for call options?Thanks
Yes – its the same formula.
(But just remember that if D1 is a negative value, then ( – D1) becomes a positive value 🙂
If we are asked to explain how a delta hedge could be used to eliminate risk, & we are give info that would allow is to calculate a call and a put option, which should we use??
Thanks
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