CFA Practice Question

There are 227 practice questions for this study session.

CFA Practice Question

If the underlying stock price goes up, the replicating strategy for puts requires ______.

A. buying more shares
B. short selling more shares
C. doing nothing
Correct Answer: A

If S goes up, both d1 and d2 will go up, and both N(d1) and N(d2) will go up. The replicating strategy requires short selling N(-d1) = 1 - N(d1) shares, which means short selling fewer shares (to buy some shares back).

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