Mukilteo researches various hedge fund strategies. First, Mukilteo analyzes an event-driven strategy involving two companies, Algona Applications (AA) and Tukwila Technologies (TT). AA’s management, believing that its own shares are overvalued, uses its shares to acquire TT. The IC has expressed concern about this type of strategy because of the potential for loss if the acquisition unexpectedly fails. Mukilteo’s research reveals a way to use derivatives to protect against this loss, and he believes that such protection will satisfy the IC’s concern.
Q. Which of the following set of derivative positions will most likely satisfy the IC’s concern about the event-driven strategy involving AA and TT?
- Long out-of-the-money puts on AA shares and long out-of-the-money calls on TT shares
- Long out-of-the-money calls on AA shares and long out-of-the-money puts on TT shares
- Long risk-free bonds, short out-of-the-money puts on AA shares, and long out-of-the-money calls on TT shares
To manage the risk of the acquisition failing, the manager can buy out-of-the-money calls on AA shares (to cover the short position) and buy out-of-the money puts on TT shares (to protect against loss in value). Such a position will provide protection that would likely satisfy the IC’s concern about losses with this strategy.
买 buy out-of-the-money calls on AA的意义是 什么呀？有什么用吗？可以不买吗？
