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Delta Neutralisation of a portfolio

G

Guest 61086

Guest
Hi, re the below question (which appears on the 2017 Mock Exam B):

Suppose a financial institution has a portfolio that contains the following four positions in options on a stock:

1. A long position in 20,000 call options and the delta of each of these option is 0.620.
2. A short position in 10,000 call options and the delta of each of these options is 0.550.
3. A long position in 20,000 put options and the delta of each of these options is -0.470.
4. A short position in 10,000 put options and the delta of each of these options is -0.430.
Which trade will make the portfolio delta neutral?
a) Short 1,800 shares
b) Short 4,350 shares
c) Long 2,250 shares
d) Long 3,700 shares

The answer is as follows

Answer: A. Short 1,800 shares
The position delta of the portfolio = (+1)*20,000*0.620 + (-1)*10,000*0.550 + (1)*20,000*-0.470 + (-1)*10,000*-0.430 = +1,800.

Therefore, to neutralize delta, the trade is to short (sell) 1,800 shares (each share has a delta of 1.0)

My question is why despite the calculation being plus 1800 is the correct requirement to sell the shares and not buy. I would have thought that as the calculation is a positive number that the action is to buy and not sell.

Can you clarify please? Thanks

Nicole Seaman

Director of FRM Operations
Staff member
Subscriber
Hi, re the below question (which appears on the 2017 Mock Exam B):

Suppose a financial institution has a portfolio that contains the following four positions in options on a stock:

1. A long position in 20,000 call options and the delta of each of these option is 0.620.
2. A short position in 10,000 call options and the delta of each of these options is 0.550.
3. A long position in 20,000 put options and the delta of each of these options is -0.470.
4. A short position in 10,000 put options and the delta of each of these options is -0.430.
Which trade will make the portfolio delta neutral?
a) Short 1,800 shares
b) Short 4,350 shares
c) Long 2,250 shares
d) Long 3,700 shares

The answer is as follows

Answer: A. Short 1,800 shares
The position delta of the portfolio = (+1)*20,000*0.620 + (-1)*10,000*0.550 + (1)*20,000*-0.470 + (-1)*10,000*-0.430 = +1,800.

Therefore, to neutralize delta, the trade is to short (sell) 1,800 shares (each share has a delta of 1.0)

My question is why despite the calculation being plus 1800 is the correct requirement to sell the shares and not buy. I would have thought that as the calculation is a positive number that the action is to buy and not sell.

Can you clarify please? Thanks
Hello @Tim_Rogers

This question is part of our paid materials and is discussed further HERE. I'm not sure where you got this from, but I don't see a current or previous order on your account. All of the answers and explanations for our paid materials are located in a different section of the forum that is accessible to paid members only. Did you purchase under another account maybe? Since you mention that it is a 2017 version of our mock exam, did you place an order back in 2017 under a different account? If it is a pirated version (illegal copy) of our mock exam, we cannot provide support in the forum for materials that are not purchased directly from us. But if you did purchase our materials please let me know so I can make sure you have the correct forum permissions.

Thank you,

Nicole

G

Guest 61086

Guest
Nicole, I'm not a paid member, re the question I cant recall where I saw it but I would have thought that the question itself is not proprietary as its rather simple. Thankyou

Nicole Seaman

Director of FRM Operations
Staff member
Subscriber
Nicole, I'm not a paid member, re the question I cant recall where I saw it but I would have thought that the question itself is not proprietary as its rather simple. Thankyou
Hello @Tim_Rogers

All of our practice questions are proprietary, as David writes every one of them himself. Any practice questions that are part of our paid materials are copyrighted and it is illegal to sell copyrighted materials outside of our website. When you purchase or retrieve materials outside of our website, those are pirated. I know that I had mentioned here in another thread where you posted that our practice questions are part of our paid materials also: https://www.bionicturtle.com/forum/threads/practice-question-naming-convention.22809/post-78051. In your original post here, you've written that you retrieved this question from our 2017 Mock Exam B so it sounds like you have a copy of that mock exam.

I'm sorry, but we just cannot support pirated materials in the forum. We need to focus our support on those who have legally purchased our materials through our website. We spend HOURS preparing these materials so we cannot provide the materials or our support for them at no cost. I would be happy to discuss this further via email. Thank you.

cc: @David Harper CFA FRM

David Harper CFA FRM

David Harper CFA FRM
Staff member
Subscriber
@Tim_Rogers If the question is so simple, why do you need to follow-up? Actually, that's not my question. My question is the same as Nicole's: where you did you get this stolen material?

Detective

Active Member
Wow. Maybe GARP should put more emphasis on ethics like CFA institute. To put icing on the cake, on top of potential illegal procurement to go on the forums and ask for support, truly incredible.

A riddle: the answer to the question is in the title of the post.

G

Guest 61086

Guest
Whoa..Detective I have no idea why you are responding, you are not an employee of BT, my question has zero bearing or impact on you in the slightest. I have located the answer via an alternative source already, which was in a very similar format. In any case that same question appears on the BT website, you have also made the assumption that I have lifted or stolen the material, what evidence do you have of this? David/Nicole, perhaps in future you should be moderating comments.

Detective

Active Member
I am just an amused spectator. What’s the alternative source? In the very first post you say “2017 Mock B”, which is oddly specific. Mock [letter] is a term specific to how BT organizes their practice exams FYI. The question you posted was found in BT database verbatim as well.

So you must be somewhat cognizant that this alternative source is plagiarizing BT intellectual property, right?

David Harper CFA FRM

David Harper CFA FRM
Staff member
Subscriber
@Tim_Rogers What Detective said. To me, the issue is firstly ethical: you know you are using pirated material. Fact.

It's our question, I personally wrote it. The reason Nicole knew this instantly is that it's in our Mock and we write exactly 100.00% of our own questions. Unlike your source.

Re: perhaps in future you should be moderating comments.
We don't want to host that sort of forum. It may be a just our little tiny section of the online world, but we want candidates to get unfiltered, un-moderated views. Including our own errors, critical feedback to GARP, etc. It's actually a longstanding belief that I've always had which i categorize under ethics (or perhaps value system is more accurate). The point is, we want to be trusted, and I think selective moderation has the potential to impact trust. We only moderation if (i) logistically obvious; e.g., duplicative or (ii) ethically required; e.g., violation of GARP's terms

Detective

Active Member
Just want to add, I am also not a fan of excessive moderation. I think debate and healthy argument is an essential part of the learning process. I've participated in forums where threads would be locked or comments deleted just because moderators did not agree with the particular point of view. Without exception, those communities have died and become relics on the Internet.

The story here does not add up at all. Not only is the question plagiarized verbatim, so is the solution. There was no effort whatsoever to disguise or paraphrase the original question or solution. Given this I am pretty confident that the BT copyright was all over the "alternative source", which likely lazily just made the BT mock available. "I cannot recall where I saw it" did not sound very convincing either.

G

Guest 61086

Guest
@Tim_Rogers What Detective said. To me, the issue is firstly ethical: you know you are using pirated material. Fact.

It's our question, I personally wrote it. The reason Nicole knew this instantly is that it's in our Mock and we write exactly 100.00% of our own questions. Unlike your source.

Re: perhaps in future you should be moderating comments.
We don't want to host that sort of forum. It may be a just our little tiny section of the online world, but want candidates to get unfiltered, un-moderated views. Including our own errors, critical feedback to GARP, etc. It's actually a longstanding belief that I've always had which i categorize under ethics (or perhaps value system is more accurate). The point is, we want to be trusted, and I think selective moderation has the potential to impact trust. We only moderation if (i) logistically obvious; e.g., duplicative or (ii) ethically required; e.g., violation of GARP's terms

Just want to add, I am also not a fan of excessive moderation. I think debate and healthy argument is an essential part of the learning process. I've participated in forums where threads would be locked or comments deleted just because moderators did not agree with the particular point of view. Without exception, those communities have died and become relics on the Internet.

The story here does not add up at all. Not only is the question plagiarized verbatim, so is the solution. There was no effort whatsoever to disguise or paraphrase the original question or solution. Given this I am pretty confident that the BT copyright was all over the "alternative source", which likely lazily just made the BT mock available. "I cannot recall where I saw it" did not sound very convincing either.
Just want to add, I am also not a fan of excessive moderation. I think debate and healthy argument is an essential part of the learning process. I've participated in forums where threads would be locked or comments deleted just because moderators did not agree with the particular point of view. Without exception, those communities have died and become relics on the Internet.

The story here does not add up at all. Not only is the question plagiarized verbatim, so is the solution. There was no effort whatsoever to disguise or paraphrase the original question or solution. Given this I am pretty confident that the BT copyright was all over the "alternative source", which likely lazily just made the BT mock available. "I cannot recall where I saw it" did not sound very convincing either.[/QUOTE

G

Guest 61086

Guest
@Tim_Rogers What Detective said. To me, the issue is firstly ethical: you know you are using pirated material. Fact.

It's our question, I personally wrote it. The reason Nicole knew this instantly is that it's in our Mock and we write exactly 100.00% of our own questions. Unlike your source.

Re: perhaps in future you should be moderating comments.
We don't want to host that sort of forum. It may be a just our little tiny section of the online world, but want candidates to get unfiltered, un-moderated views. Including our own errors, critical feedback to GARP, etc. It's actually a longstanding belief that I've always had which i categorize under ethics (or perhaps value system is more accurate). The point is, we want to be trusted, and I think selective moderation has the potential to impact trust. We only moderation if (i) logistically obvious; e.g., duplicative or (ii) ethically required; e.g., violation of GARP's terms
I think you should be prepared to introduce moderation of forums before people start casting dispersions about people. I'm sure that you can understand the implications of permitting this unabated.

Nicole Seaman

Director of FRM Operations
Staff member
Subscriber
I think you should be prepared to introduce moderation of forums before people start casting dispersions about people. I'm sure that you can understand the implications of permitting this unabated.
@Tim_Rogers

There is no need to moderate a post that states facts by a member who actually paid for our materials. Detective may not work for BT, but he has been a valued paid member who not only asks questions in the forum but also helps other members. There is no question here. It is plain and simple. You are not and never have been a paid member. You have never purchased our materials from our website, but it is very clear that you have a copy of our mock exam that is not available to free members.

David writes every single practice question himself so the only way for you to gain access to these practice questions is by purchasing them on our website the legal way, purchasing an illegal pirated version, or getting them from someone else. This other post by you tells us that you also have a copy of all of our practice question sets, as you asked for advice on which questions to focus on: https://www.bionicturtle.com/forum/threads/practice-question-naming-convention.22809/#post-78051. I was also clear in my response on that post that our practice questions must be purchased.

We cannot, and will not, support anyone who cannot do things the right way and purchase our materials from our website. It is ethically wrong (check out GARP's Code of Conduct regarding ethics). I'm also pretty sure that you would not want someone to come into your place of work, steal what you've worked so hard to accomplish, and then ask you for advice or help on it. There is no need to continue commenting or debating about this. It is a matter of principle.

G

Guest 61086

Guest
Nicole, to be very clear with you and I very much hope that you will take these comments on board.

First some facts that appear to have been lost on you, I have never communicated that I was a paid member, ever. You asked me if I was and I said that I wasn't, I did not try to obfuscate this in the slightest, I was very clear with you. The implication by you and others that I have is completely inappropriate and thoroughly baseless. In any case are your internal controls so abjectly poor that you as the CAO are not aware if I am or ever was a paid member? I find that hard to believe. You would know this information immediately.

Secondly, I have never attempted to hide the fact that my question was from an old BT practice exam, despite what you or your forum members believe. If I was not being transparent I would have attempted to hide the origin of the question, changed some of the wording etc but I havent. The additional accusation that I have access to the ENTIRE mock exam is also without basis, you have taken one question and made the assumption that I have access to the entire exam. Do you, David or The Detective have any evidence of this? I reiterate my comment that you as the owners of this website need to introduce moderation as the comments by The Detective are nothing more than an attempt to further harass me, to placate you and David, which is unacceptable. Whilst I accept that you may not be responsible for what he initially posted, once discovered both his initial and ongoing posts by him against my character should have been removed by you as the CAO. He makes accusations that he cannot support and you have supported him by claiming that he is indeed stating facts. By what measure are these facts? He is not an employee of BT therefore he should only be commenting on question related matters not commenting on a persons character or honesty. He claimed that he was an amused spectator, nothing could be further from the truth given his comments.

Thirdly, your comment that "you also have a copy of all of our practice question sets" is patently incorrect, by what proof do you have that I have any of these these sets, let alone all of them? You, David and The Detective seem very determined to make a case that I am serial offender in this activity and questioning my ethics and integrity . I DO NOT HAVE OR EVER HAVE HAD A COPY OF ANY THESE PRACTICE SETS. You need to immediately retract that comment. The comments that have been made to me have presented me in a very disparaging manner and I thoroughly reject the accusation The only access that I have ever had is that access that has been permitted by your own rules. You are the CAO, which means that the issue of access rights etc fall entirely within your remit. My suggestion is that you check to see since my account was opened what areas I have accessed. That will in all likelihood explain just why I asked you the question on naming conventions. Again, this matter rests with you as the CAO. It may well be that I have been provided more access than I should have (without my knowledge what I should or shouldn't have access to) by you hence my question. You have then realised that my access is not consistent with me being a non-paid member and subsequently revoked it. This as well would be consistent with a question that I contacted you later concerning the bookmarks that I had previously saved and since that conversation had disappeared from my account which again would be consistent with my account being reset.

You, David and The Detective have made all of these comments in a public forum.

If not via your website then by what other means could I have been provided with this material? A third party or perhaps the internet. If the latter then I would expect that you are rigorously policing this to ensure that your proprietary material is not on the internet and when you locate it you are having it removed with the the support of internet companies. You would when considering the manner and tone of your response to me when I asked what was an innocuous question fully expecting a simple response that you and David are not ensuring that your material is not being placed on the internet by third parties and that you have taken action against these people.

I will await your response

Detective

Active Member
Hey Tim, can you simply clarify where you obtained both the question and solution in the original post?

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