Hi all I know I have learnt these topic in lv2 due to my bad memory ah… Anyway 2012 essay 9. Derivatives The option trader has a short naked put position. If he wants to hedge this, should he buy the underlying? The answer makes sense as well (sell, probably I must be wrong) just want to confirm how the logic goes. And for the number of the underlying eq, Can I just show delta * the underlying position? ( this case 2000*0.3088) Many thanks in advance!
Short put means that the trader’s gonna lose when price of underlying goes down. Thus in order to offset it he want to gain on such movement in price - thus he should sell/short underling.
of stocks to short = # options sold * delta
thanks! I got what you mean