You Would Like to Hold a Protective Put Position on the Stock

You would like to hold a protective put position on the stock of Avalon Corporation to lock in a guaranteed minimum value of $50 at year-end. Avalon currently sells for $50. Over the next year, the stock price will increase by 10% or decrease by 10%. The T-bill rate is 5%. Unfortunately, no put options are traded on Avalon Co.
Suppose the desired put options with X = 50 were traded. What would be the hedge ratio for the option?

A) −1
B) −0.5
C) 0.5
D) 1

Correct Answer:

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Access For Free