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#### Guest 61086

##### Guest

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

- A long position in 20,000 call options and the delta of each of these option is 0.620.
- A short position in 10,000 call options and the delta of each of these options is 0.550.
- A long position in 20,000 put options and the delta of each of these options is -0.470.
- A short position in 10,000 put options and the delta of each of these options is -0.430.

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