Hedging Strategies For Minimizing The Underlying Risk Of Stock Portfolio

1826 Words Sep 27th, 2015 8 Pages
This report is aimed at utilising hedging strategies to minimise the underlying risk of stock portfolio. During our simulation, we mainly implemented two strategies to hedge down-side risk, which were protective and put straddle. First of all, a discussion about implementing such two strategies in the trading process would be presented. After that, the outcome of our strategies would be analysed, including the gross profit and the net profit. Finally, we are going to seek the arbitrage opportunities based on the put-call parity. However, we were not able to capture these opportunities as a result of time restrictions. If no hedging strategies are used, it is likely to suffer a loss.

Introduction
From the figure below(哪个figure) it is obvious that our net profit is above the zero profit line and achieves a profit of $36323 after deducting the transaction cost($2621+ $26448)and the impact of increasing stock price($69000), which means we properly hedged our stock portfolio risk. We experienced the half time for price risk during the first period and a whole period of price fluctuation during the second period. We focused more on the out of money put to against price fall at the end of the March, thus we made a negative profit after the price fall at the end of the January. In the second period, we utilised straddle to hedge the volatility, however the stock price presented a upward trend, and we incurred price risk.

Hedging strategies
According to XXX, the meaning of hedging…
Open Document