A portfolio manager in charge of a portfolio worth $10 million is concerned that

Question

A portfolio manager in charge of a portfolio worth $10 million is concerned that the market might decline rapidly during the next six months and would like to use options on the S&P 100 to provide protection against the portfolio falling below$9.5 million. The S&P 100 index is currently standing at 500 and each contract is on 100 times the index.

a) If the portfolio has a beta of 1, how many put option contracts should be purchased? (6 points)

b) If the portfolio has a beta of 0.5, how many put options should be purchased? (4 points)

Explanation / Answer

(a) No of put optios contract is =10,000,000/500*100

=200

(b) No of put options =10,000,000*.5/500*100

=100

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.