Question
In: Finance
Options can also be used for hedging. Consider an investor who in May of a particular...
Options can also be used for hedging. Consider an investor who in May of a particular year owns 1,000 Microsoft shares. The share price is $28 per share. The investor is concerned about a possible share price decline in the next two months and wants protection. The investor could buy 10 July put option contracts on Microsoft on the CBOE with a strike price of $27.50. This would give the investor the right to sell a total of 1,000 shares for a price of $27.50 each. If the quoted option price per share is $1, what is the total cost of the hedging?
- Please explain step by step
Solutions
Expert Solution
Investor own 1000 shares of microsoft which is currently selling fo 28
he is on the opinion that the price will crash in coming months so need to be protected from the crash
so he should buy put option which gives him right to sell at strike price (27.5) what ever the price may be
so for buying the right to sell he need to pay premium the option writer
given premium per share is 1
we have 1000 shares so we need hedge for 1000 shares
cost of hedging = no of option contracts bought * premium per option
= 1000*1 = 1000$
jeff jeffy answered 2 years agoRelated Solutions
3. Identify techniques that can be used for hedging.
3. Identify techniques that can be used for hedging.
Define forward and futures contracts and explain how they may be used in hedging and speculation....
Define forward and futures contracts and explain how
they may be used in hedging and speculation.
Explain, using numerical examples, the settlement mechanisms of
forward and futures contracts and discuss how these are likely to
affect the probability of, and loss from default.
"Vertical restraints can be used to increase efficiency in a market, butthey may also restrict competition."...
"Vertical restraints can be used to increase efficiency in a
market, butthey may also restrict competition." Discuss, with
reference to economic theory aswell as any relevant empirical
evidence.
Need response in 200-250 words.Avoid plagiarism.
Consider an investor who owns stock XYZ. The stock is currently trading at $120. The investor...
Consider an investor who owns stock XYZ. The stock is currently
trading at $120. The investor worries that the outlooks for the
market and the stock are not favorable. The investor decides to
protect his potential losses by using derivatives.
Assume the investor decided to purchase a European call option
on stock ABC. Further assume that the current price of the stock is
$130. The investor paid $10 for the call with the strike price at
$155.
(A)If the stock...
Contingent exposure can best be hedged with A) money market hedging. B) options. C) futures. D)...
Contingent exposure can best be hedged with
A) money market hedging.
B) options.
C) futures.
D) all of the options
and why?
Consider an investor with $10,000 available to invest. He has the following options regarding the allocation...
Consider an investor with $10,000 available to invest. He has
the following options regarding the allocation of his available
funds: (1) he can invest in a risk-free savings account with a
guaranteed 3% annual rate of return; (2) he can invest in a fairly
safe stock, where the possible annual rates of return are 6%, 8%,
or 10%; or (3) he can invest in a more risky stock, where the
possible annual rates of return are 1%, 9%, or 17%....
"Options Markets" Please respond to the following: Justify why an investor may prefer stock splits versus...
"Options Markets" Please respond to the following: Justify why
an investor may prefer stock splits versus stock dividends as an
effective way to increase their portfolio. Provide an example for
your justification. Analyze the terms “in the money option” and
“out of the money option.” Provide two examples of their
applications.
Discuss 9 options available for expatriate compensation. Consider how each of these options might be used...
Discuss 9 options available for expatriate compensation.
Consider how each of these options might be used for a
transnational and a multi-domestic company. (please list all of the
options, don't half-heartedly do 3 and say that is complete. I am
trying to get a better grasp as my online classes make no sense. I
have had other experts bullshitted this and it's frustrating and a
waste of money in having this service)
Discuss 9 options available for expatriate compensation. Consider how each of these options might be used...
Discuss 9 options available for expatriate compensation.
Consider how each of these options might be used for a
transnational and a multi-domestic company.
Explain how the forward exchange rate can be used for hedging using the forward exchange market....
Explain how the forward exchange rate can be used for
hedging using the forward exchange market. Use
realistic numerical examples to illustrate your answer. Use the
dollar per euro exchange rate as the basis for your answer.
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Kant says that to act morally is to act out of duty. How does this differ...
- Suppose you are trying to determine the capacity (in gallons) of the gas tank needed on...
- List the arithmetic operators used in BASIC and state their priorities of execution in a statement....
- Describe the espoused values of a company you have worked for (or been exposed to -...
- Can you explain to me the differnces in how we paid for the health care (access...
- Discuss proactive and defensive marketing in context to the company position in the hypothetical market structure...
- Write a java code that could be used to show the simulation of a tornado. use...
ADVERTISEMENT