A Canadian investor owns 300 shares of Scotiabank (BNS) and wants to protect herself against a large drop in the stocks price between now and the end of the year.

i. Should she buy BNS stock put options or call options?

ii. To protect herself with a maximum loss of about 10% below the current market price, what strike price should she choose?

iii. What expiry date should she choose?

iv. How many contracts would she need to buy?

v. How much would it cost her to acquire this hedge based on the ask price of the options? (ie what would be the total cost of the option contract(s) premium?) Attach a screenshot of the appropriate options trading price.

vi. What is the current price of Scotiabank (BNS) shares and what are her 300 shares currently worth? What percentage of that value would she have to spend to hedge with options?

HINTS:

Go to the Montreal Exchange website (https://www.m-x.ca/nego_cotes_en.php?symbol=bns*) and find the appropriate Scotiabank option (call or put) with the appropriate strike price and expiry date.

Each option contract is for 100 shares

The Bid & Ask prices are PER SHARE not per contract

) and find the appropriate Scotiabank option (call or put) with the appropriate strike price and expiry date.

Each option contract is for 100 shares

The Bid & Ask prices are PER SHARE not per contract