In *uating the dynamic delta hedging of a portfolio of short option positions, which of the following is correct?
A. The interest cost of carrying the delta hedge will be highest when the options are deep out-of-the-money.
B. The interest cost of carrying the delta hedge will be highest when the options are deep in-the-money.
C. The interest cost of carrying the delta hedge will be lowest when the options are at-the-money.
D. The interest cost of carrying the delta hedge will be highest when the options are at-the-money.
Answer:B
Explanation: The deeper into-the-money the options are, the larger their deltas and therefore the more expensive to delta hedge.