Question
Manager holds a portfolio with beta = 1.0 worth $500,000. He would like to hedge against a 10% loss ($50,000) during the next 3 months.
Manager holds a portfolio with beta = 1.0 worth $500,000. He would like to hedge against a 10% loss ($50,000) during the next 3 months. S&P 500 index is currently standing at 1,000.
To hedge the risk, the manager enters in five (5) SP500 index put options with a strike price of 900.
Say the index drops by 19%, then what is the total value of the position?
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Case Studies In Finance
Authors: Robert Bruner, Kenneth Eades, Michael Schill
6th Edition
0073382450, 978-0073382456
