its urgent An investor currently holds 1,000 shares of QQQ, the Power Shares NASDAQ 100 ETF, priced at $105.78/share. The investor would like to hedge the risk associated with the position in the short-term. QQQ puts with a strike price of 102.50 and expiring in two months currently have a premium of $1.18. Call options with the same expiration and a strike price of 107 currently have a premium of $1.03. Explain how the investor could hedge the downside risk of QQQ by either purchasing the 102.50 put, or by creating a range forward (purchasing the 102.50 put and selling the 107 call). Compare and contrast the two alternative hedges. Remember, each option contract covers 100 shares, the investor would need 10 contracts to cover their position in QQQ.

its urgent An investor currently holds 1,000 shares of QQQ, the Power Shares NASDAQ 100 ETF, priced at $105.78/share. The investor would like to hedge the risk associated with the position in the short-term. QQQ puts with a strike price of 102.50 and expiring in two months currently have a premium of $1.18. Call options with the same expiration and a strike price of 107 currently have a premium of $1.03. Explain how the investor could hedge the downside risk of QQQ by either purchasing the 102.50 put, or by creating a range forward (purchasing the 102.50 put and selling the 107 call). Compare and contrast the two alternative hedges. Remember, each option contract covers 100 shares, the investor would need 10 contracts to cover their position in QQQ.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section: Chapter Questions

Problem 1P

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