Question: You are long a call option no MITCO stock. You have delta hedged your position. You hear on the radio that the CEO of MITCO has just been arrested for running a massive Ponzi scheme. The stock price plunges $10. How do you adjust your hedge (qualitatively)? That is, do you borrow and buy stock or sell stock and lend? Explain carefully.
I know that delta is the rate of change of option's value with respect to stock price.
Since stock price decreases, so is delta.
But I do not know how to adjust the delta hedging.