Question
As a hedge fund manager, you have a bearish view on BHP shares for the following 2 months given the uncertainties related to Covid-19. BHP
As a hedge fund manager, you have a bearish view on BHP shares for the following 2 months given the uncertainties related to Covid-19. BHP Ltds share is currently trading at $36.00 per share. The two-month put option on BHP share with an exercise price of $32per share is selling at $1.5 (premium)per share. The two-month call option on BHP share has an exercise price of $32per share and is selling at $2.0 (premium)per share REQUIRED:
- Calculate the cost of purchasing put options on 500,000 BHP shares
- Determine the share price for BHP shares at which the decision to purchase the above put options effectively breaks even for the fund manager.
- Suppose you dont own any shares, but you still want to make profits during this period. How can you use both put and call options to take advantage of the fall in the share price?
- What are the risks, if any, associated with the trading strategy prescribed in part c)
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Handbook Of Recent Advances In Commodity And Financial Modeling
Authors: Giorgio Consigli, Silvana Stefani, Giovanni Zambruno
1st Edition
3319613189, 978-3319613185
