If you have an asset that you will be selling during the next two weeks, then you might be able to hedge the proceeds from the asset sale by:
If you have an asset that you will be selling during the next two weeks, then you might be able to hedge the proceeds from the asset sale by:
a. purchasing a call option on the asset.
b. purchasing a put option on the asset.
c. purchasing more of the asset.
d, none of the above.
Homework Answers
Option "b" is correct that says, "Purchasing a Put option on the asset".
Put option- It is a type of derivative options contract that is right but not the obligation to sell a particular asset at a specific price on or before expiration date. Put is bought when an investor is bearish towards the overall market of particular security (underlying asset).
In this question, You have an asset that you will be selling in two weeks, you are afraid of price drop of the asset after two weeks so you buy the Put to hedge against the sale proceeds in the future. If asset price increases, you will get profit by selling it at higher price but if asset price decreases then Put price will increase and you will get profit in the Put position.
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