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Assume that you manage a $100 million stock portfolio of which 3% is comprised of GM stock and 3.5% is comprised of Ford stock. Assume that GM and Ford are the only automobile industry holdings in the portfolio. Assume that you are bearish on the automobile industry over the next six months and neutral to bullish on all other industries. Utilizing derivatives create a hedging strategy to protect the portfolio over the next six months from your bearish automobile industry outlook

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Assume that you manage a $100 million stock portfolio of which 3% is comprised of GM stock and 3.5% is comprised of Ford stock.

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To protect the portfolio over the next six months from my bearish automobile industry outlook, I can pursue a covered call strategy by selling the calls. As we are assuming the automobile stocks will be in bearish trend, the stocks will decline in value and thus, call options will never be ...

Solution provided by:
Sheetal Jain, PGDM
Education
  • BComm, University of Delhi
  • Post Graduate Diploma in Management (Equivalent to MBA), All India Management Association
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