Mark Washington, CFA, is an analyst with BIC. One year ago, BIC analysts predicted that the U.S. equity market would most likely experience a slight downturn and suggested delta-hedging the BIC portfolio. As predicted, the U.S. equity markets did indeed experience a downturn of approximately 4% over a 12-month period. However, portfolio performance for BIC was disappointing, lagging its peer group by nearly 10%. Washington has been told to review the options strategy to determine why the hedged portfolio did not perform as expected.                 Washington considers a put option that has a delta of −.65. If the price of the underlying asset decreases by $6, then what is the best estimate of the change in option price?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Mark Washington, CFA, is an analyst with BIC. One year ago, BIC analysts predicted that the U.S. equity market would most likely experience a slight downturn and suggested delta-hedging the BIC portfolio. As predicted, the U.S.
equity markets did indeed experience a downturn of approximately 4% over a 12-month period.
However, portfolio performance for BIC was disappointing, lagging its peer group by nearly 10%.
Washington has been told to review the options strategy to determine why the hedged portfolio did not perform as expected.                

Washington considers a put option that has a delta of −.65. If the price of the underlying asset decreases by $6, then what is the best estimate of the change in option price?

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