3. Pendant Co, a U.S. publishing house, is receiving an advance of CHF 500,000 from a Swiss distributor. The advance will be paid in mid-March 2011. Pendant wants to hedge its exposure with options. The exchange rate is S-0.8195 USD/CHF. You have the following information (taken from the Wall Street Journal). PHILADELPHIA OPTIONS Wednesday, Dec 8, 2010 Puts Calls Vol. Last Vol Last Swiss Franc 62,500 Swiss Francs-cents per unit. 81.95 78 Jan 80 Mar 20 3.28 10 0.45 82 Mar. 83 Jan 83 Mar 16 1.36 23 2.02 84 Jan 16 099 84 Mar 70.60 15 3.7 85 Jan 2 0.35 3 4.20. 4 0.07 4 0.92 30 2.48 .. A. Specify type of option contract (call or put). B. Specify number of contracts bought. C. Using the information given in the WSJ, construct: i) ii) at-the-money (closest in-the-money) Mar hedge. out-of-the money Mar hedge. Briefly discuss the advantages and disadvantages of each strategy. Which one would you recommend to Pendant? (Why?) 3. Pendant Co, a U.S. publishing house, is receiving an advance of CHF 500,000 from a Swiss distributor. The advance will be paid in mid-March 2011. Pendant wants to hedge its exposure with options. The exchange rate is S-0.8195 USD/CHF. You have the following information (taken from the Wall Street Journal). PHILADELPHIA OPTIONS Wednesday, Dec 8, 2010 Puts Calls Vol. Last Vol Last Swiss Franc 62,500 Swiss Francs-cents per unit. 81.95 78 Jan 80 Mar 20 3.28 10 0.45 82 Mar. 83 Jan 83 Mar 16 1.36 23 2.02 84 Jan 16 099 84 Mar 70.60 15 3.7 85 Jan 2 0.35 3 4.20. 4 0.07 4 0.92 30 2.48 .. A. Specify type of option contract (call or put). B. Specify number of contracts bought. C. Using the information given in the WSJ, construct: i) ii) at-the-money (closest in-the-money) Mar hedge. out-of-the money Mar hedge. Briefly discuss the advantages and disadvantages of each strategy. Which one would you recommend to Pendant? (Why?)