Propose ONE option combination strategy that involves more than one option contract for the A$ commercial paper
Question:
Propose ONE option combination strategy that involves more than one option contract for the A$ commercial paper for the currency risk faced by this exposure. ADM's management has expressed a desire to retain some of the upside benefits that hedging with options can permit but without paying a lot of money in option premiums. That is, your recommended strategies should provide a "reasonably effective" hedge but keep the option premium payment limited to a "reasonable amount" (it does not have to be zero!). As the strategist, it is up to you what you consider "reasonable" for this purpose. You must also describe the benefits and possible shortcomings of your proposed option strategies. You must use actual option data to illustrate your option strategies.
Calculate the number of contracts required for the strategy and provide the strike prices and total premium costs.
Intermediate Accounting principles and analysis
ISBN: 978-0471737933
2nd Edition
Authors: Terry d. Warfield, jerry j. weygandt, Donald e. kieso