Risk Management and Hedging Strategy Using Options
You have been hired as a manager of a well diversified mutual fund which has a portfolio of Stocks valued at $100 million dollars. It is approximately invested in 500 different shares. These stocks attempt to match/track the S&P 500 index, which has a current value of 1,000 points. You are very concerned about the state of the economy: An interest rate increase, oil price shock, volatile situation abroad and the like. You want to protect the value of your portfolio. Make a presentation to your board members about how you can use the Options market for Portfolio insurance with specific emphasis on its costs and benefits.