Explanation

Using the delta-normal approach for VaR calculation:

1. Calculate the 1-day 95% VaR for 1 share of the underlying stock:

   • Daily volatility (σ) = 1.82% = 0.0182
   • Z-score for 95% confidence level = 1.645
   • Current stock price = USD 62
   • VaR per share = σ × Z × Stock Price = 0.0182 × 1.645 × 62 = USD 1.8562

2. Calculate VaR for one option:

   • Delta (Δ) = 0.5
   • VaR per option = Δ × VaR per share = 0.5 × 1.8562 = USD 0.9281

3. Calculate VaR for the entire position:

   • Number of options = 600
   • Total VaR = VaR per option × Number of options = 0.9281 × 600 = USD 556.86 ≈ USD 557

Why other options are incorrect:

• A (USD 54): Ignores delta and uses option price instead of stock price
• C (USD 787): Uses 99% confidence level (Z = 2.326) instead of 95%
• D (USD 1,114): Forgets to apply delta to the calculation