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Hedging using Options: (12 marks) a. On any day between Thursday, 7 March 2024 and the assessment due date, how will you use the option contract to hedge one of your three selected stocks in your P

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Home » Uncategorized » Hedging using Options: (12 marks) a. On any day between Thursday, 7 March 2024 and the assessment due date, how will you use the option contract to hedge one of your three selected stocks in your P
  1. Hedging using Options: (12 marks)
    a. On any day between Thursday, 7 March 2024 and the assessment due date, how will you use the option contract to hedge one of your three selected stocks in your Portfolio1. You need to determine and explain which option you want to use (i.e., specify whether it is a call or put, when the expiration date is, appropriate strike price, whether you should go long or short, number of contracts, etc.). Provide justification for your decision. (7 marks)
    Note: The budget for option transaction is not limited and not included in the initial $1 million budget. If you are not able to backdate historical price for the option, feel free to use the available price whenever you start drafting the answer to this question. For example, if your start to look at this question on 11 March 2024, and cannot find the historical option price on 7 March 2024, then it is fine to use the option price on 11 March 2024.
    b. Discuss when you will exercise your option and its potential payoff. (5 marks)

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