Question
ABC Fund Managers currently have a large holding of CLO Mining shares in their portfolio. The portfolio manager is a little concerned about the prospects
ABC Fund Managers currently have a large holding of CLO Mining shares in their portfolio. The portfolio manager is a little concerned about the prospects of the equity market over the next three months, predicting a fall of 15% across the market, and so is seeking to protect the value of the investment using an option strategy.
The current share price is $25.20, and at-the-money options (options with an exercise price equal to the current share price) are priced as follows:
Put / Call | Time to expiry | Premium / Price |
Call | 2 months | $1.10 |
Put | 2 months | $0.95 |
Call | 3 months | $1.70 |
Put | 3 months | $1.55 |
Calculate the break-even price of your suggested strategy .
Select one:
a. 23.50
b. 24.25
c. 23.65
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