Question

Given the prices of options for CD, if you believe that CD is going to appreciate and you have payables worth CD 50,000 to be made in the future, which of the following positions would you rather take and how much do you need to pay/receive today to hedge against such a risk?

OPTIONS PHILADELPHIA EXCHANGE Calts PutS Vol. Last Vol. Last 72 Se. 722 Jul 72½ Sep 73 JUi 73 Sep 2 1.05 cO 0.13 50 0.08 281.75 2 2.26 23.95 23 4.88 75/% Scp 762 Sep

Sell 73 Jul Call option and receive $40

Buy 73 1/2 Sep Put option and pay $1,130

Buy 73 Jul Call option and pay $40

Buy 73

Need explanation!!

Answer 1

As the risk is that Canadian Dollar will appreciate, we should benefit on our derivative or hedge position when Canadian dollar appreciates. We know that Call is useful when spot appreciates.
Hence, Buy 73 Jul Call.
For buying we need to pay a premium Hence we will pay 40

So, Buy 73 Jul Call option and pay $40