Create a Hedging Strategy to Protect the Portfolio
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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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Solution Summary
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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There are numerous ways to create a hedging strategy using derivatives in this scenario. If I wish to continue holding the stock in my portfolio (either due to the fact that current stock price is lower or equal to the purchase price or due to diversification issues), I will go ahead and buy "put ...
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- BCom, SGTB Khalsa College, University of Delhi
- MBA, Rochester Institute of Technology
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