Answer: Portfolio 1

## Explanation Gamma risk refers to the sensitivity of an option's delta to changes in the underlying price. Let's analyze each portfolio: **Portfolio 1: Long stock without a hedge** - Stock has zero gamma (gamma of stock = 0) - No options involved - **Gamma risk = 0** **Portfolio 2: Long stock hedged with a long put** - Long stock: gamma = 0 - Long put: gamma > 0 (puts have positive gamma) - **Gamma risk > 0** **Portfolio 3: Short stock hedged with a long call** - Short stock: gamma = 0 - Long call: gamma > 0 (calls have positive gamma) - **Gamma risk > 0** **Comparison:** - Portfolio 1 has zero gamma risk (no options) - Portfolios 2 and 3 both have positive gamma risk due to the long option positions Therefore, **Portfolio 1** has the lowest gamma risk. **Correct answer: A - Portfolio 1**

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