Hedging Strategies For Minimizing The Underlying Risk Of Stock Portfolio

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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…show more content…
For this assignment, the task is to hedge POGO’s securities position of 100,000 shares in 3 months of the trading sessions, thus, the combination of using buy or sell put and buy option is necessary to achieve such mission[不要了]. Before the start of this trading round, it is difficult to predict the pattern of price. However, based on the previous two practice trading rounds, which the price trend is downward, our group decided to adopt the protective put buying strategy at the beginning.. The advantage of protective put buying is to provide limited loss and unlimited profit. Back to the trading round, in the beginning period, our group bought a few put options, including 200 contracts of Jan 24P, 100 in Jan 22P, 100 in Jan 21P, 400 in Mar 24P, 300 in Mar 23P . In general, the price pattern could perform in two situations which are going up and going down.[这个我改了句型] Assuming the price of stock is rising later, the profit that our group gain is coming from the price increasing of holding shares, which should minus the cost of buy put option. If the stock price is going down to less than exercise price, then our group could gain profit from put option and total profit is gathering(什么意思) from the exercise price. According to the appendix XXX, our group gained a gross profit of $42,394. During the ‘frozen time’ before the second round, we thought there would be a
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