Question
A company has a $36 million stock portfolio with a beta of 1. The S&P index is currently at 1200. Option contracts on $100 times
A company has a $36 million stock portfolio with a beta of 1. The S&P index is currently at 1200. Option contracts on $100 times the index can be traded. What position in index option contracts should be taken to hedge the portfolio against a loss of more than $3,000,000?
A) Buy 25 put contracts with a strike price of 1100
B) Buy 25 put contracts with a strike price of 1200
C) Buy 25 call contracts with a strike price of 1100
D) Buy 3000 put contracts with a strike price of 1100
E) Buy 3000 call contracts with a strike price of 1200
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Corporate Finance Core Principles and Applications
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford
3rd edition
978-0077971304, 77971302, 978-0073530680, 73530689, 978-0071221160, 71221166, 978-0077905200
