- My Forums
- Tiger Rant
- LSU Recruiting
- SEC Rant
- Saints Talk
- Pelicans Talk
- More Sports Board
- Coaching Changes
- Fantasy Sports
- Golf Board
- Soccer Board
- O-T Lounge
- Tech Board
- Home/Garden Board
- Outdoor Board
- Health/Fitness Board
- Movie/TV Board
- Book Board
- Music Board
- Political Talk
- Money Talk
- Fark Board
- Gaming Board
- Travel Board
- Food/Drink Board
- Ticket Exchange
- TD Help Board
Customize My Forums- View All Forums
- Show Left Links
- Topic Sort Options
- Trending Topics
- Recent Topics
- Active Topics
Started By
Message
Option question
Posted on 4/27/11 at 8:06 pm
Posted on 4/27/11 at 8:06 pm
If you sell an option to someone, what does "what position should you take in order to hedge your exposure to this person" exactly mean?
1
Posted on 4/27/11 at 8:09 pm to texastiger8
I initially was going to talk about counterparty risk, but that doesn't mean anything for selling options.
Is "person" supposed to be position?
Is "person" supposed to be position?
Posted on 4/27/11 at 8:12 pm to TheHiddenFlask
Holding the opposite economic position of the buyer, hedging your exposure to the buyer of the option
Posted on 4/27/11 at 8:15 pm to texastiger8
Are you answering your own question or mine? I understood that part. The question just doesn't make any sense.
Why would you need to hedge exposure to the buyer of an option? It doesn't make any sense.
Why would you need to hedge exposure to the buyer of an option? It doesn't make any sense.
Posted on 4/27/11 at 8:16 pm to TheHiddenFlask
My head is spinning I'm just trying to figure out what my professor is asking for. Word for word.. Thank you for your help by the way.
1. You are the writer of this option (this means you sold this option) and you hold the opposite economic interest.
a. What position do you need to undertake to hedge the exposure you have to the the person to whom you wrote this option?
b. What if instead of a call this is a put? How would this change your answer?
1. You are the writer of this option (this means you sold this option) and you hold the opposite economic interest.
a. What position do you need to undertake to hedge the exposure you have to the the person to whom you wrote this option?
b. What if instead of a call this is a put? How would this change your answer?
Posted on 4/27/11 at 8:26 pm to texastiger8
For a call I would assume your hedge would be to hold the underlying shares?
Posted on 4/27/11 at 8:31 pm to texastiger8
Google hedge ratio.
Posted on 4/27/11 at 8:47 pm to texastiger8
It's just worded strangely.
I believe the answer is:
if you sold a call: Hold the underlying asset
if you sold a put: Short the underlying asset
There are multiple ways to hedge, depending on how much you want to hedge. If you want to completely hedge, essentially exiting the position, just buy the call or put on the open market.
I hope this helps.
Also, check out KFizz's advice.
What course is this for? That might help frame the caliber of the question.
I believe the answer is:
if you sold a call: Hold the underlying asset
if you sold a put: Short the underlying asset
There are multiple ways to hedge, depending on how much you want to hedge. If you want to completely hedge, essentially exiting the position, just buy the call or put on the open market.
I hope this helps.
Also, check out KFizz's advice.
What course is this for? That might help frame the caliber of the question.
Posted on 4/27/11 at 9:03 pm to TheHiddenFlask
It's for walter.
ETA: I knew as soon I saw his email that someone was going to post it on here.
ETA: I knew as soon I saw his email that someone was going to post it on here.
This post was edited on 4/27/11 at 9:05 pm
Posted on 4/27/11 at 9:13 pm to lsu6294
(no message)
This post was edited on 4/28/11 at 7:06 am
Posted on 4/27/11 at 9:46 pm to TheHiddenFlask
sent.
Page 1 of 1
Popular
Back to top
Follow TigerDroppings for LSU Football News