cost

问题如下：

Formulate a strategy that would limit the downside exposure of SEA. Calculate the cost of the strategy.

选项：

解释：

Correct Answer:

To protect SEA stock from short-term downside risk, Braceras should use an at-the-money protective put option from the available set of options in Exhibit 1.

Holding the asset and buying a put on the asset is protective put strategy. A protective put provides downside protection while keeping upside potential (other than the cost of the puts).

Protective put = long the underlying stock + long a put option contract

Number of put contracts to buy = notional / (strike price × contract size) = ($2,000,000) / ($110.5 × 100) = 181put contracts

Braceras should buy 181 put contracts.

Each $110 put is priced at $5.05. For 182 contracts, it is 181 × $5.05 × 100 = $91,405.