Today = 10/26/20 Suppose that the company METALLORUM of Grupo Autln hedges itself every month for the risk of the change in the price of gold (XAU) that it will sell a month later The hedging strategy consists of combining short and long positions of both PUT options and CALL options. These instruments are listed on the market and the strike price is adjusted on a daily basis. On October 26, 2020, it created its strategy that expired on November 25, 2020. The risk-free rate in Libor remained constant at 0.5% per annum cap continuously throughout the relevant period.
a) What was the net investment per ounce in this hedging strategy? b) What was the payoff of your hedging strategy at maturity from October 26, 2020 to November 25, 2020? (Considers continuous compounding and 365-day years) c) What was the profit of your hedging strategy at maturity from October 26, 2020 to November 25, 2020? (Considers continuous compounding and 365-day years) d) What should the expiration price have been for the strategy to have generated $ 0?
Puts 1 Short K1, 1 Long K2; K2> K1 OTM strike XAU25P1MER K2 OTM premium XAU10P1M=R K1 5.5487 5.4588 5.3269 5.4553 5.4474 5.6383 5.7712 4.9424 5.3441 5.3282 5.3444 Refinitiv => DATE 26/10/20 27/10/20 28/10/20 29/10/20 30/10/20 02/11/20 03/11/20 04/11/20 05/11/20 06/11/20 09/11/20 10/11/20 11/11/20 12/11/20 13/11/20 16/11/20 17/11/20 18/11/20 19/11/20 20/11/20 23/11/20 24/11/20 25/11/20 26/11/20 27/11/20 XAU= SPOT 1,901.6938 1,906.8300 1,877.0619 1,867.1346 1,877.9500 1,895.0955 1,908.3600 1,903.2100 1,948.5600 1,951.5100 1,861.8600 1,876.5000 1,864.7100 1,875.7566 1,888.0398 1,888.5177 1,878.6031 1,871.4100 1,867.3678 1,870.4858 1,835.8500 1,807.5100 1,805.2983 1,810.2500 1,808.3000 OTM strike XAU10P1M=R K1 1,760.5250 1,763.9705 1,771.6761 1,744.9007 1,734.2054 1,743.4283 1,755.7264 1,762.9514 1,774.9853 1,817.0724 1,818.8873 1,733.0393 1,746.9279 1,745.2777 1,755.2700 1,767.2012 1,773.7193 1,769.4930 1,763.3237 1,748.7770 1,753.9930 1,720.8091 1,684.8161 1,690.1678 1,696.8092 1,832.4009 1,834.1241 1,840.8816 1,812.4028 1,803.1421 1,812.3188 1,826.5715 1,835.3047 1,838.0854 1,883.9980 1,885.2567 1,799.1624 1,811.1895 1,806.3964 1,816.7977 1,828.7234 1,832.1486 1,827.2803 1,819.2327 1,809.7742 1,815.2400 1,782.0807 1,747.3667 1,749.9414 1,756.0070 OTM premium XAU25P1MER K2 16.4242 16.1332 15.7608 16.1173 16.0865 16.7288 17.1467 14.5889 16.0505 16.0913 16.1928 15.1675 14.0768 13.9796 13.9374 13.0591 12.9700 12.4732 13.6195 13.6945 13.6838 13.9806 13.2393 12.9921 13.0608 5.0933 4.7769 4.7763 4.7681 4.4903 4.4480 4.2833 4.6940 4.7186 4.7224 4.8283 4.5870 4.5202 4.5455 Calls 1 Short K1, 1 Long K2; K2> K1 OTM strike XAU25C1MER OTM strike XAU10C1MER K2 OTM premium XAU25C1MER K1 OTM premium XAU10C1MER K2 K1 5.7013 5.6155 5.4549 5.5872 5.5834 5.7549 5.9025 5.1976 5.8914 5.9880 Refinitiv => DATE 26/10/20 27/10/20 28/10/20 29/10/20 30/10/20 02/11/20 03/11/20 04/11/20 05/11/20 06/11/20 09/11/20 10/11/20 11/11/20 12/11/20 13/11/20 16/11/20 17/11/20 18/11/20 19/11/20 20/11/20 23/11/20 24/11/20 25/11/20 26/11/20 27/11/20 XAU= SPOT 1,901.6938 1,906.8300 1,877.0619 1,867.1346 1,877.9500 1,895.0955 1,908.3600 1,903.2100 1,948.5600 1,951.5100 1,861.8600 1,876.5000 1,864.7100 1,875.7566 1,888.0398 1,888.5177 1,878.6031 1,871.4100 1,867.3678 1,870.4858 1,835.8500 1,807.5100 1,805.2983 1,810.2500 1,808.3000 1,985.9741 1,983.0633 1,987.3594 1,955.1013 1,949.2666 1,958.1867 1,977.9284 1,990.6390 1,971.7523 2,033.3766 2,036.1629 1,948.6044 1,949.7704 1,934.5227 1,943.3158 1,955.3703 1,950.2064 1,944.5778 1,932.1107 1,931.2519 1,937.5321 1,903.6730 1,871.0345 1,867.0411 1,871.0782 2,078.4039 2,072.3105 2,075.0961 2,040.1333 2,036.5990 2,045.4419 2,067.6274 2,082.6939 2,052.8865 2,126.6207 2,131.1913 2,038.7085 2,032.4795 2,010.5047 2,017.8484 2,030.6591 2,019.8886 2,013.2859 1,998.4359 2,000.8556 2,007.7175 1,972.3722 1,940.0498 1,932.5885 1,935.6873 16.3035 16.0557 15.6095 15.9559 15.9362 16.4996 16.9561 14.7445 16.6349 16.8762 16.5245 15.2391 14.0681 13.8247 13.8734 12.9022 12.8183 12.3523 13.1399 13.2300 13.1080 13.2889 12.5811 12.3747 12.4373 5.7663 5.3273 4.9217 4.8353 4.8688 4.5307 4.4846 4.3272 4.5638 4.5999 4.5303 4.5644 4.3387 4.2742 4.2976 Puts 1 Short K1, 1 Long K2; K2> K1 OTM strike XAU25P1MER K2 OTM premium XAU10P1M=R K1 5.5487 5.4588 5.3269 5.4553 5.4474 5.6383 5.7712 4.9424 5.3441 5.3282 5.3444 Refinitiv => DATE 26/10/20 27/10/20 28/10/20 29/10/20 30/10/20 02/11/20 03/11/20 04/11/20 05/11/20 06/11/20 09/11/20 10/11/20 11/11/20 12/11/20 13/11/20 16/11/20 17/11/20 18/11/20 19/11/20 20/11/20 23/11/20 24/11/20 25/11/20 26/11/20 27/11/20 XAU= SPOT 1,901.6938 1,906.8300 1,877.0619 1,867.1346 1,877.9500 1,895.0955 1,908.3600 1,903.2100 1,948.5600 1,951.5100 1,861.8600 1,876.5000 1,864.7100 1,875.7566 1,888.0398 1,888.5177 1,878.6031 1,871.4100 1,867.3678 1,870.4858 1,835.8500 1,807.5100 1,805.2983 1,810.2500 1,808.3000 OTM strike XAU10P1M=R K1 1,760.5250 1,763.9705 1,771.6761 1,744.9007 1,734.2054 1,743.4283 1,755.7264 1,762.9514 1,774.9853 1,817.0724 1,818.8873 1,733.0393 1,746.9279 1,745.2777 1,755.2700 1,767.2012 1,773.7193 1,769.4930 1,763.3237 1,748.7770 1,753.9930 1,720.8091 1,684.8161 1,690.1678 1,696.8092 1,832.4009 1,834.1241 1,840.8816 1,812.4028 1,803.1421 1,812.3188 1,826.5715 1,835.3047 1,838.0854 1,883.9980 1,885.2567 1,799.1624 1,811.1895 1,806.3964 1,816.7977 1,828.7234 1,832.1486 1,827.2803 1,819.2327 1,809.7742 1,815.2400 1,782.0807 1,747.3667 1,749.9414 1,756.0070 OTM premium XAU25P1MER K2 16.4242 16.1332 15.7608 16.1173 16.0865 16.7288 17.1467 14.5889 16.0505 16.0913 16.1928 15.1675 14.0768 13.9796 13.9374 13.0591 12.9700 12.4732 13.6195 13.6945 13.6838 13.9806 13.2393 12.9921 13.0608 5.0933 4.7769 4.7763 4.7681 4.4903 4.4480 4.2833 4.6940 4.7186 4.7224 4.8283 4.5870 4.5202 4.5455 Calls 1 Short K1, 1 Long K2; K2> K1 OTM strike XAU25C1MER OTM strike XAU10C1MER K2 OTM premium XAU25C1MER K1 OTM premium XAU10C1MER K2 K1 5.7013 5.6155 5.4549 5.5872 5.5834 5.7549 5.9025 5.1976 5.8914 5.9880 Refinitiv => DATE 26/10/20 27/10/20 28/10/20 29/10/20 30/10/20 02/11/20 03/11/20 04/11/20 05/11/20 06/11/20 09/11/20 10/11/20 11/11/20 12/11/20 13/11/20 16/11/20 17/11/20 18/11/20 19/11/20 20/11/20 23/11/20 24/11/20 25/11/20 26/11/20 27/11/20 XAU= SPOT 1,901.6938 1,906.8300 1,877.0619 1,867.1346 1,877.9500 1,895.0955 1,908.3600 1,903.2100 1,948.5600 1,951.5100 1,861.8600 1,876.5000 1,864.7100 1,875.7566 1,888.0398 1,888.5177 1,878.6031 1,871.4100 1,867.3678 1,870.4858 1,835.8500 1,807.5100 1,805.2983 1,810.2500 1,808.3000 1,985.9741 1,983.0633 1,987.3594 1,955.1013 1,949.2666 1,958.1867 1,977.9284 1,990.6390 1,971.7523 2,033.3766 2,036.1629 1,948.6044 1,949.7704 1,934.5227 1,943.3158 1,955.3703 1,950.2064 1,944.5778 1,932.1107 1,931.2519 1,937.5321 1,903.6730 1,871.0345 1,867.0411 1,871.0782 2,078.4039 2,072.3105 2,075.0961 2,040.1333 2,036.5990 2,045.4419 2,067.6274 2,082.6939 2,052.8865 2,126.6207 2,131.1913 2,038.7085 2,032.4795 2,010.5047 2,017.8484 2,030.6591 2,019.8886 2,013.2859 1,998.4359 2,000.8556 2,007.7175 1,972.3722 1,940.0498 1,932.5885 1,935.6873 16.3035 16.0557 15.6095 15.9559 15.9362 16.4996 16.9561 14.7445 16.6349 16.8762 16.5245 15.2391 14.0681 13.8247 13.8734 12.9022 12.8183 12.3523 13.1399 13.2300 13.1080 13.2889 12.5811 12.3747 12.4373 5.7663 5.3273 4.9217 4.8353 4.8688 4.5307 4.4846 4.3272 4.5638 4.5999 4.5303 4.5644 4.3387 4.2742 4.2976
