Question 13

You are given the following data on call and put premiums in pence per share for Company ABC shares which are currently priced in the market at 510 pence. Each contract refers to 1000 shares.

i. You expect the share price to rise to 700 pence. Discuss a speculative strategy and the profits/losses at a range of different prices for the underlying share in December.

ii. You own 1000 shares in Company ABC and fear that the share price might fall to 300 pence. Discuss a hedging strategy using the above contracts and give the approximate value of your net hedged position at a range of different prices for the underlying share in December.

Call premiums in pence December Put premiums in pence December Strike Prices 500 pence 530 pence 65 50 45 60