a. Assume that you wanted to take an options position to hedge your entire portfolio, which is

Question:

a. Assume that you wanted to take an options position to hedge your entire which is currently valued at about $700,000. How many index option contracts should you take a position in to hedge your entire Assume that you want to create a hedge so that your will lose no more than 2 percent from its present value. How could you take a position in options on index futures to achieve this goal? What is the cost to you as a result of creating this hedge?
c. Given your expectations of a weak stock market over the next three months, how can you generate some fees from the sale of options on S&P 500 index futures to help cover the cost of purchasing options?
As a stock manager, you have investments in many U.S. and plan to hold these over a long-term period. However, you are concerned that the stock market may experience a temporary decline over the next three months, and that your stock will probably decline by about the same degree as the market. You are aware that options on S&P 500 index futures are available. The following options on S&P 500 index futures are available and have an expiration date about three months from now:

Strike Price Call Premium Put Premium 1372 24 40 40 1428 24

The options on S&P 500 index futures are priced at $250 times the quoted premium. Currently, the S&P 500 index level is 1400. The strike price of 1372 represents a 2 percent decline from the prevailing index level, and the strike price of 1428 represents an increase of 2 percent above the prevailing index level.

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Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...