The greeks, pg 9, exam style ques

In part (ii)(a) of the solution there is a line given in the end

"So a short holding of one derivative requires selling 0.03663 shares to achieve a delta hedged portfolio"

Could someone explain this to me in detail? Many thanks

 

The delta of -0.03663 means that if the share price changes by one cent say, then the price of the derivative will change by -0.03663 cents.

So, if you have a short holding in one derivative, ie minus one derivatives each with a delta of -0.03663, then you will need to hold -0.03663 shares (each with a delta of +1) to delta hedge your derivative position.

Your overall portfolio delta will then be:

-1 * -0.03663 + (-0.03663) * +1 = 0

and if the share price rises by 1 cent, the change in your portfolio value will be:

-1 * -0.03663 + (-0.03663) * +1 = 0

 

got it!, thanks for explaining it mate