You hold 20,000 shares in ABC plc which are currently priced at 500p. ABC has developed a
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You hold 20,000 shares in ABC plc which are currently priced at 500p. ABC has developed a revolutionary flying machine. If trials prove successful the share price will rise significantly. If the government bans the use of the machine, following a trial failure, the share price will collapse. RequiredÂ
(a) Explain and illustrate how you could use the traded options market to hedge your position. Further information Current time: 30 January. Traded option quotes on ABC plc on 30 January:
(b) What is meant by intrinsic value, time value, in-the-money, at-the-money and out-of-the-money? Use the above table to illustrate.
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A possible hedging strategy Purchase 20 June 450 pu...View the full answer
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