Hedging using option

. IV. You think MBB stock has potential for an upward move in price. You have no position whatsoever in the stock now. You would like to take opportunity of any up movement in price but want to strictly limit your downside risk. MBB stock price now is RM 12.00. a. Given the information below, outline TWO possible appropriate strategies. For each strategy, State the position Graph the strategy Outline the risk profile, and State the maximum profit, maximum loss, and break-even point(s). 30-day calls 30-day puts 11 call @ 1.55 11 put @ 0.25 12 call @ 0.70 12 put @ 0.45 12 call @ 0.22 13 put @ 1.40 (20 marks) b. From a cost viewpoint, which is the best strategy? (5 marks) c. What are the recommended options strategies when you expect the market has extreme (high) volatility? (5 marks) V. Suppose you had just gone long (purchased) on lot of Syarikat XYZ stock at a price of RM 15.00 each, for a total investment of RM 15,000. You believe this stock has long term potential but wish to protect yourself from any short-term downside movement in price. Suppose 3-month, at-the-money put options on Syarikat XYZ stocks are being quoted at RM 0.15 or 15 sen each or RM 150 per lot (RM 0.15 x 1,000). a. What would be the appropriate options strategy to hedge the long stock position? (5 marks) b. Show (in a table) the payoff to the combined position for a given range of stocks prices at options maturity in 3-months. (10 marks) c. Draw the payoff profile of combined positions. (10 marks) . IV. You think MBB stock has potential for an upward move in price. You have no position whatsoever in the stock now. You would like to take opportunity of any up movement in price but want to strictly limit your downside risk. MBB stock price now is RM 12.00. a. Given the information below, outline TWO possible appropriate strategies. For each strategy, State the position Graph the strategy Outline the risk profile, and State the maximum profit, maximum loss, and break-even point(s). 30-day calls 30-day puts 11 call @ 1.55 11 put @ 0.25 12 call @ 0.70 12 put @ 0.45 12 call @ 0.22 13 put @ 1.40 (20 marks) b. From a cost viewpoint, which is the best strategy? (5 marks) c. What are the recommended options strategies when you expect the market has extreme (high) volatility? (5 marks) V. Suppose you had just gone long (purchased) on lot of Syarikat XYZ stock at a price of RM 15.00 each, for a total investment of RM 15,000. You believe this stock has long term potential but wish to protect yourself from any short-term downside movement in price. Suppose 3-month, at-the-money put options on Syarikat XYZ stocks are being quoted at RM 0.15 or 15 sen each or RM 150 per lot (RM 0.15 x 1,000). a. What would be the appropriate options strategy to hedge the long stock position? (5 marks) b. Show (in a table) the payoff to the combined position for a given range of stocks prices at options maturity in 3-months. (10 marks) c. Draw the payoff profile of combined positions. (10 marks)