Let’s say you had $10,000 available to allocate to an investment strategy that included derivatives. What...
Let’s say you had $10,000 available to allocate to an investment strategy that included derivatives. What strategy would you employ? What specific derivatives would you buy or sell? Share with the class and include your rational.
Homework Answers
I would employ a covered call strategy.
A covered call strategy involves buying a stock and selling out-of-money call options on the underlying stock.
I would employ this strategy to hedge the risk of a fall in the underlying stock. If the stock price falls, the gains from the written call option would offset losses on the stock.
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