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Assume that you hedge a $50 million large cap index fund by purchasing January 15, 2022 SPX (SP500) puts with a strike price 3,895. The
Assume that you hedge a $50 million large cap index fund by purchasing January 15, 2022 SPX (SP500) puts with a strike price 3,895. The SP500 is currently 3,890.0 and the put price is 91.0. You are not fully funded, so the purchase of the puts does not reduce your investment in
equities. SPX index put options have a $100 multiple.
a. How many contracts and at what total cost will you protect the portfolio?
b. What is the break-even expiration index level, cost and what is the potential loss of that strategy?
c. You consider instead the 3,750.0 put, with 43.0 premium. What is the break-even expiration?
equities. SPX index put options have a $100 multiple.
a. How many contracts and at what total cost will you protect the portfolio?
b. What is the break-even expiration index level, cost and what is the potential loss of that strategy?
c. You consider instead the 3,750.0 put, with 43.0 premium. What is the break-even expiration?
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a To protect a 50 million large cap index fund you will need to purchase 50000000 100 50000...
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Financial Reporting and Analysis
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon
6th edition
9780077632182, 78025672, 77632184, 978-0078025679
