FINC6015 ASSIGNMENT 2
Answer for question A
Based on the trends in following portfolio and P/L chart during the period of January, February and March, it is clearly to see there were some hedging effects during those three months transactions, but our hedging transactions were not enough in January and February and the situation was improved during the period of March.
The unhedged line is the market intrinsic value and the red line shows our real operation reflects on the portfolio. At the end of January, if unhedged, the price was $19.5, therefore it should be ($20-$19.5)*100,000=$50,000, but our result is less than $5,000, so our hedging had some effects but not hedging the portfolio to a large extend. And the same circumstance occurred at the end of February, if unhedged, the price was $18, therefore it should be ($19.5-$18)*100,000=$150,000, but our result less than this amount. At the end of March, if unhedged, the amount should be ($18-$17.5)*100,000=$50,000, which is higher than our hedged amount. And our protective strategy was effective during 16th to 24th, which maintain a stable value during the period of time and hedging the transactions in a good way.
In general, during the period of January and February, all period of time did not protected enough to against the falling price, a few transaction operation were not effective in hedging process. However, the hedging performances were kinds of efficient only in the end period of each month, especially, in the second time period in P/L chart.
Answer for question B
Two hedging strategies used in the trading scenario are protective put and covered call. A protective put strategy is a combination of long stock and long put. The main objective of a protective put strategy is to shield the effects of adverse movements of the prices of shares and lower the downside risk. Buying a protective put assures an individual’s maximum cost is a certain amount which will not increase as the stock price decreases. Therefore, the owner of a
Based on the trends in following portfolio and P/L chart during the period of January, February and March, it is clearly to see there were some hedging effects during those three months transactions, but our hedging transactions were not enough in January and February and the situation was improved during the period of March.
The unhedged line is the market intrinsic value and the red line shows our real operation reflects on the portfolio. At the end of January, if unhedged, the price was $19.5, therefore it should be ($20-$19.5)*100,000=$50,000, but our result is less than $5,000, so our hedging had some effects but not hedging the portfolio to a large extend. And the same circumstance occurred at the end of February, if unhedged, the price was $18, therefore it should be ($19.5-$18)*100,000=$150,000, but our result less than this amount. At the end of March, if unhedged, the amount should be ($18-$17.5)*100,000=$50,000, which is higher than our hedged amount. And our protective strategy was effective during 16th to 24th, which maintain a stable value during the period of time and hedging the transactions in a good way.
In general, during the period of January and February, all period of time did not protected enough to against the falling price, a few transaction operation were not effective in hedging process. However, the hedging performances were kinds of efficient only in the end period of each month, especially, in the second time period in P/L chart.
Answer for question B
Two hedging strategies used in the trading scenario are protective put and covered call. A protective put strategy is a combination of long stock and long put. The main objective of a protective put strategy is to shield the effects of adverse movements of the prices of shares and lower the downside risk. Buying a protective put assures an individual’s maximum cost is a certain amount which will not increase as the stock price decreases. Therefore, the owner of a