5.6 Westfarmers shares currently trade at $32.55. A funds manager is holding a large number of...

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5.6 Westfarmers shares currently trade at $32.55. A funds manager is holding a large number of Westfarmers shares in an investment portfolio and wishes to protect the value of the instalment. The manager buys a long put option with an exercise price of $32.15 and pays a premium of $1.35 per share. (a) By entering into this options strategy, explain whether the funds manager will exercise the option if the spot price is above or below the exercise price (b) Calculate the break-even price for the long put position (c) Draw a fully labelled diagram of the long put and short put positions 5.6 Westfarmers shares currently trade at $32.55. A funds manager is holding a large number of Westfarmers shares in an investment portfolio and wishes to protect the value of the instalment. The manager buys a long put option with an exercise price of $32.15 and pays a premium of $1.35 per share. (a) By entering into this options strategy, explain whether the funds manager will exercise the option if the spot price is above or below the exercise price (b) Calculate the break-even price for the long put position (c) Draw a fully labelled diagram of the long put and short put positions

Answer rating: 100% (QA)

a By entering into this options strategy the funds manager has purchased a long put option This give... View the full answer