Asha KA, T. Manjunatha


Many investors use option contracts in their portfolio mainly as strategy to hedge against risk concerned with the uncertainty of underlying asset price movements. But Option contracts itself are highly risky instruments and are influenced by the specific market variables. In this paper we calculated the Option price and sensitivies- Delta, Gamma, Theta, Vega and Rho with in Black Scholes model (1973) framework, by constructing a customized Call and Put option Contracts considering stocks as underlying asset whose prices are ranges between Rs. 180 to Rs 245. Strike price is Rs 210, risk free interest rate as 10 percent, Volatility is 25 percent and days left to expiry are 30 days. Later changes in values of each sensitivies are analysed against upward movement of underlying stock prices and also analysed impact of each sensitivity values on option prices of both call and put option contracts. Also evaluated the Delta hedging strategy with an example. Finally, we conclude that each option sensitivity measures the specific risk factors (which are dynamic in nature) of options and helps the investors to anticipate price movements for option positions. Further investor can hedge their risk in option position against underlying price uncertainty by implementing Delta hedging strategies but it has to be rebalanced frequently since dynamic nature of risk factor of Delta.


Call and Put options, Option price, Option sensitivities, and Delta hedging strategy.


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