Question 1. Apple stock (ticker: AAPL) is currently at $415/share, while Google stock (ticker: GOOG) is currently at $835/share. Consider the following options:
_ Option A: A one-month call option to buy Apple stock at a strike of $415. Cost: CA
_ Option G: A one-month call option to buy Google stock at a strike of $835. Cost: CG
_ Option AG: A one-month call option to buy a package of one share each of Apple and Google at a strike of $1,250. Cost:CAG.
Which of the following alternatives is most correct?
(a) CAG > CA + CG.
(b) CAG < CA + CG.
(c) CAG = CA + CG.
(d) Any of the above is possible.
Question 2. A stock is trading at $80. You hold a delta-hedged portfolio in which you are short a call and long _ units of the stock. The delta of the call is 0.65 and the gamma of the call is 0.06. If the stock registers an unexpected price decrease of $4, the value of your delta-hedged portfolio will
(a) not change.
(b) decrease by approximately $0.12.
(c) increase by approximately $0.48.
(d) decrease by approximately $0.48.
(e) increase by approximately $0.12.