Financial Risk Manager Part 1
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A manager at an OTC options dealer is reviewing the calculations of an analyst that were used to implement a delta hedge for a long position in a call option. The manager discovers that at the time the hedge was established, the analyst had estimated the delta of the option position as 60,000, but it was really 70,000. If the underlying stock has increased in price since the implementation of the hedge, which of the following statements is correct?
A
The value of the option position has increased, but this increase is larger in magnitude than the decrease in value of the stock position used to establish the hedge.
B
The value of the option position has increased, but this increase is smaller in magnitude than the decrease in value of the stock position used to establish the hedge.
C
The value of the option position has decreased, but this decrease is larger in magnitude than the increase in value of the stock position used to establish the hedge.
D
The value of the option position has decreased, but this decrease is smaller in magnitude than the increase in value of the stock position used to establish the hedge.