Hedging Current Exposure

CFA Level III Derivatives
#1

2012 CFA AM Exam Q9:

In question A, Delport sold put options to a client - according to the guideline answer he is net long the underlying equity and therefore needs to short the underlying to hedge his position.

However in question B, Delport once again sells call options to a client, however this time the guideline answers states the hedged position is long the underlying and short the call.

These two answers seem to be contradictory, is the difference in the hedge position due to Delport selling puts in the first question and calls in the second?

#2

Yes. The underlying position is always opposite the option position when starting out.

#3

You have to look at your delta to know if you need to buy or sell more of the underlying to adjust your hedge.

Positive delta (long call or short put): sell the underlying to be delta neutral

Delta negative (short call or long put): buy underlying to hedge