Your friend received 50,000 shares of Beta Company yesterday as a birthday present. These shares currently sell at $50 each. He plans to sell these shares in six months to buy a home in Sydney. As the share market is always volatile, he is afraid that he will have to sell the shares at a loss jeopardizing his ability to buy the home. A six-month call option and a put option of Beta Company are currently selling at $3 and $4, respectively. The six-month exercise price of a call and a put of Beta Company are $56 and $44, respectively. 

Using the above information, you are required to advise your friend on three options strategies that he could use to protect the value of his portfolio. Select the best strategy for your friend and explain why the selected strategy is the best.

Answer rating: 100% (QA)

There are various ways to hedge or protect the portfolio using call and put options Some of them are ... View the full answer