ASSIGNMENT

Topic 2: Hedging Hedging is arguably the most important function of an options trader. The ability to limit the amount of risk a portfolio is subjected to is a vital function.

You are going to explore one method of hedging risks: protective puts. Before starting this assignment, you might want to review the concept of protective puts in your textbook.

Select one of the stocks you purchased in Unit 2. Use the skills obtained in the previous assignment to theoretically obtain a put option on your stock.

Assume you have 500 shares of the stock and five put option contracts. Compute your gain or loss on the combined position if the stock price increases 20% and decreases 20% at the time of expiry. Write a short report of what you found (including prices) and post it on the appropriate Discussion Board.