Hi
@WhizzKidd It's sometimes easier to help if we know the source (i.e., what is the source?) because some sources are more reliable than others. It appears we are given
position delta without knowing the percentage greeks or actual position sizes (see
https://www.bionicturtle.com/forum/threads/l1-t4-7-dynamic-delta-hedging.4839/ for introduction to distinction between position greeks and percentage greeks). If the goal is to neutralize both gamma and delta, we could (i) enter a short position in call options (i.e., with negative position gamma) and then (ii) short shares to neutralize the remaining positive position delta. So, typically you'd neutralize the gamma first and then the delta because shorting shares will neutralize the delta without impacting gamma; but options have both delta and gamma.
But the questions asks only "What position would you take to make the position delta neutral?" which can be achieved with a
short currency futures contract, in this case with an
approximate (the future has percentage delta of almost one) notional of $2.0 mm. We neutralize position delta on a dollar-for-dollar basis. The gamma will remain. Then, with respect to "
After a short period of time, the USDRUS exchange rate moves to 13.916. Estimate the new delta.", I suppose the question is looking for: that's a 13.916/14.20-1 =
-2.00% move exactly, such that the new delta = $0.40 * -2.0% = -$0.80 on the net position; or maybe it looking for the $2.0 mm - 2%*0.40 = $1.2 mm on the original exposure. I hope that helps!
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