GIVEN Stock Price 25.27 Strike Price 25.00 Call Price 1.40 Put Price 0.90 CALCULATIONS
Stock Price Unhedged(A) payoff of futures contract (B) C=A+B our hedge option
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By using above information we will apply the risk management strategy of using futures contracts to hedge aluminum prices. I mean we will calculate A(unhedged) B(payoff of futures contract) andC=A+B our hedge option
1) Create a risk management strategy if you had the opposite natural position in aluminum (in other words, an inflow).
2) What would your natural position look like? What type of futures contract would hedge this risk?
3) What would the combined payoff look like?