Mark Washington, CFA, is an analyst with BIC. One year ago, BIC analysts predicted that the U.S. equity market would most likely experience a slight downturn and suggested delta-hedging the BIC...

Mark Washington, CFA, is an analyst with BIC. One year ago, BIC analysts predicted that the U.S. equity market would most likely experience a slight downturn and suggested delta-hedging the BIC portfolio. As predicted, the U.S. equity markets did indeed experience a downturn of approximately 4% over a 12-month period.

However, portfolio performance for BIC was disappointing, lagging its peer group by nearly 10%. Washington has been told to review the options strategy to determine why the hedged portfolio did not perform as expected.
 Which of the following best explains a delta-neutral portfolio? A delta-neutral portfolio is perfectly hedged against:
a. Small price changes in the underlying asset.
b. Small price decreases in the underlying asset.
c. All price changes in the underlying asset.