Given the prices of options for CD, if you believe that CD is going to appreciat

Question

Given the prices of options for CD, if you believe that CD is going to appreciate and you have payables worth CD 50,000 to be made in the future, which of the following positions would you rather take and how much do you need to pay/receive today to hedge against such a risk?

Sell 73 Jul Call option and receive $40

Buy 73 1/2 Sep Put option and pay $1,130

Buy 73 Jul Call option and pay $40

Buy 73

Sell 73 Jul Call option and receive $40

Buy 73 1/2 Sep Put option and pay $1,130

Buy 73 Jul Call option and pay $40

Buy 73

Explanation / Answer

In order to pay in future the debtor will need CD 50,000 in a future time, for this it needs to buy CD 50,000 in future. The long position in a put option gives right to buy the underlying security in future, so here the trader needs to buy 73 1/2 Sep Put option and to pay $1,130.

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