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You are a fund manager with a large holding of Commonwealth Bank (CBA) shares. CBA is currently trading at $85.00 but you are concerned that
You are a fund manager with a large holding of Commonwealth Bank (CBA) shares. CBA is currently trading at $85.00 but you are concerned that the price will fall over the next few months. You wish to hedge against this risk by using options. The prices for the available options on CBA shares are as follows: Strike Price $80.00 Put Premium $0.95 $1.9 $5.15 $82.00 Call Premium $5.1 $3.8 $2.45 $2.4 $85.00 $87.00 $6.0 Please enter the strike price of the put option that is currently trading at-the-money $ Suppose that you use the the put option you select above to hedge the downside risk of your CBA stock holding. What is the maximum overall loss you can sustain if you set up this hedge? (what ie. the maximum loss invovled in holding a long put on the CBA shares and the CBA shares) Please answer to two decimal places (do not input the negative sign for the loss) At what CBA share price does your hedging strategy break even? S
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