The hedge ratio (delta) of an at-the-money call option on IBM is 0.29. The hedge ratio...

The hedge ratio (delta) of an at-the-money call option on IBM is 0.29. The hedge ratio of an at-the-money put option is −0.42. What is the hedge ratio of an at-the-money straddle position on IBM? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

Expert Solution

An at-the-money straddle is constructed by buying one call and one put option of the same strike and same expiry with strike price equal to the spot price of IBM.

The hedge ratio of an at-the-money straddle position on IBM = The hedge ratio of an at-the-money call option on IBM + The hedge ratio of an at-the-money put option on IBM

The hedge ratio of an at-the-money straddle position on IBM = 0.29 - 0.42

The hedge ratio of an at-the-money straddle position on IBM = -0.13

jeff jeffy answered 3 years ago

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