1. Determine your uncle’s profit and return using the protective put . 2. Determine your uncle’s…

1.Determine your uncle’s profit and return using the protective put.

2.Determine your uncle’s profit and return using the straddle.

Was the broker correct in saying that the protective put would prevent your uncle from losing if the announcement caused a large decrease in the share value? Justify your answer. What is your uncle’s maximum possible loss using the protective put?

5.What is the maximum possible loss your uncle could experience using the straddle?

6.Which strategy, the protective put or the straddle, provides the maximum upside potential for your uncle? Why does this occur?

7. Suppose that your uncle informs you that he is now contemplating hedging his 10,000 share portfolio using futures contracts. Precisely explain and specifically detail the steps involved in hedging his share portfolio using futures contracts.


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The University of Sydney Business School Finance Discipline FINC 2012 Corporate Finance II Major Assignment Due Date: 4pm Monday 13 May 2019 The table below lists the 25 largest US companies (by market capitalization) as at March 2019.Pick any one of these top 25 companies listed in table and assume that you have an uncle that owns 10,000 ordinary shares in that company. You have been informed that your uncle is concerned about the short-term outlook for the chosen company’s shares due to an impending “major announcement.” This announcement has received much attention in the press so your uncle expects the share price will change significantly in the next month, but is unsure whether it will be a profit or a loss. He hopes the price will increase, but he also doesn’t want to suffer if the price were to fall in the short term. Your uncle’s broker has recommended he buy a “protective put” on the stock, but your uncle has never traded options before and is not much of a risk taker. Your uncle contacts you and wants you to devise a plan for him to capitalize/gain if the announcement is positive but to still be protected if the news causes the share price to drop. You realize that a protective put will protect him from the downside risk, but you think a straddle may offer similar downside protection, while increasing the upside potential. You decide to show him both strategies and the resulting profits and returns he could face from each. 1. Download option quotes on options that expire in approximately one month on the shares of the chosen company from the Chicago Board Options Exchange website (www.cboe.com) into an Excel spreadsheet (click the Quotes & Data tab at the top left portion of the screen and then select “Delayed Quotes”). Specifically, go to www.cboe.com/delayedquote/quote-table-download and enter the specific symbol of your chosen company (e.g. AAPL for Apple Inc., MSFT for Microsoft Corp. etc.) and follow the detailed…


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