Coronation asset managers are administering a well diversified equities portfolio valued at $50 m as at 8 May 2012. The local market is likely to trade bearish in the forthcoming months and the fund managers do not want to be exposed to the bearish trend. The current level level of the index is 5950 and July put and call options are available at 5942 and 5965 respectively. Each index point is worth $5 and premiums on puts and calls are 4.5% and 4% of the index respectively. The beta of the portfolio is 1.05.
Fund Managers at Coronation asset managers are not in agreement with each other, fund manager A is arguing for hedge while Fund Manager B is of the opinion that a hedge is not necessary. The main index falls to 5206 between May and July 2012.
With the aid of relevant and clear calculations, show your support for either Fund Manager A or Fund Manager B.