Question
Use a collar to hedge the risk during earnings announcement seasons. Given the following information: a) Illustrate the payoff pattern of the position after hedging
Use a collar to hedge the risk during earnings announcement seasons.
Given the following information:
a) Illustrate the payoff pattern of the position after hedging
b) Calculate the hedging costs
c) Discuss the pros and cons of a collar in comparison with simple delta hedging (long puts)
Spot price: 585.21
| Strike price | option premium | |
| put | 540 | 16.60 |
| call | 640 | 16.50 |
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Finance Applications and Theory
Authors: Marcia Cornett, Troy Adair
3rd edition
1259252221, 007786168X, 9781259252228, 978-0077861681
