Answer: gamma negative

## Explanation When an investor is short 200 shares of stock, this position has **negative gamma** because: - Short stock position has gamma = 0 (linear position) - However, the short position creates directional risk that needs hedging By purchasing call options, the investor is adding **positive gamma** to the portfolio: - Long call options have positive gamma - Each call option contract typically covers 100 shares - Two call option contracts cover 200 shares **Gamma Analysis:** - Short stock position: gamma ≈ 0 - Long call options: positive gamma - Net portfolio gamma: positive However, the key insight is that the investor is using calls to hedge a short position. When hedging a short stock position with long calls, the overall portfolio becomes **gamma positive** because: - The long calls provide convexity (positive gamma) - The short stock position has no gamma - Therefore, the net gamma is positive **Correct Answer: C (gamma positive)** The portfolio is gamma positive because the long call options provide positive gamma, while the short stock position has zero gamma.

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