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(a) Gordon Gecko holds a portfolio of Vanguard ETF units that follow the S&P500 index. The index is currently at 4,500. Gordons portfolio is worth
(a) Gordon Gecko holds a portfolio of Vanguard ETF units that follow the S&P500 index. The index is currently at 4,500. Gordons portfolio is worth $50 mil- lion. He wishes to insure himself against a decline in his portfolio value of more than 16% over the next year. What option position should he take out? (b) Why might an investor buy a call option written on Microsoft rather than buy Microsoft shares themselves? (c) Your colleague Simon tells you that rising levels of volatility will (all other things being equal) cause call option prices to rise but put option prices to fall. Is he right or wrong? Explain
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