The COVID-19 Pandemic has resulted in country wide lockdowns and non-essential business closures all around the world. The stock market index has responded to the coronavirus fears with large drops. As of March 17, the S&P 500 fell nearly 30% compared to its record peak set less than a month ago. Though the stock market index has responded to unprecedented shock with large drops, not all industries/companies are impacted to the same extent. For instance, essential businesses such as the supermarkets have also seen a temporary boost in sales from "panic buying". As Bloomberg reported, one New Zealand-based 'supermarket chain said it sold enough food in a single day to feed 10 million people. You are a hedge fund manager, one of your clients overheard that option contracts may an nsurance to the investments and asks your opinions about this.
The COVID-19 Pandemic has resulted in country wide lockdowns and non-essential business closures all around the world. The stock market index has responded to the coronavirus fears with large drops. As of March 17, the S&P 500 fell nearly 30% compared to its record peak set less than a month ago. Though the stock market index has responded to unprecedented shock with large drops, not all industries/companies are impacted to the same extent. For instance, essential businesses such as the supermarkets have also seen a temporary boost in sales from "panic buying". As Bloomberg reported, one New Zealand-based 'supermarket chain said it sold enough food in a single day to feed 10 million people. You are a hedge fund manager, one of your clients overheard that option contracts may an nsurance to the investments and asks your opinions about this.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Explain to your client how option contract can be used as protection against a fall in stock price.
Transcribed Image Text:The COVID-19 Pandemic has resulted in country wide lockdowns and non-essential
business closures all around the world. The stock market index has responded to the
coronavirus fears with large drops. As of March 17, the S&P 500 fell nearly 30% compared
to its record peak set less than a month ago.
Though the stock market index has responded to unprecedented shock with large drops, not
all industries/companies are impacted to the same extent. For instance, essential
businesses such as the supermarkets have also seen a temporary boost in sales from "panic
buying". As Bloomberg reported, one New Zealand-based 'supermarket chain said it sold
enough food in a single day to feed 10 million people.
You are a hedge fund manager, one of your clients overheard that option contracts may an
insurance to the investments and asks your opinions about this.
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