You were expecting the market to correct for the last couple of months and see that...

You were expecting the market to correct for the last couple of months and see that it is happening over the last few weeks. You are expecting to receive $20,000 from an external source that you are planning to buy the SPDR ETF next month but would not want to miss out on the current price levels (in case the S&P 500 levels go up). Explain how you will lock in the current levels using options. Use today’s price on the SPY and give an estimate of the cost to do so?

Expert Solution

Ans :

In order to Lock the current levels of SPY i.e. $323.75, the best strategy would be buying the In the money call option of $323 of Next month Expiry i.e. Oct-20 which is available at $13.47. these will give us Right to Buy SPY in case the price of SPY goes up from current price.

Total cost of locking current price would be $13.47 i.e. premium amount which we have to pay for buying call option.

jeff jeffy answered 2 years ago

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