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Hi Sir,
In the below question can you please explain to me how the hedging using the Options is done?
And why haven’t they considered the gain in options if the Option is exercised
Q – (a) Evaluate which of the exchange-traded derivatives would give Nutourne Co the higher receipt, considering scenarios when the options are and are not exercised.
If the Options are exercised.Premium Paid = -105.350
Options Receipts = 12,709.375
Gain On Options = 20.825 ( 1.0375 – 1.0358 = 0.0017)
Underhedged = 51.790
Total Receipt = 12,676.640Are Not Exercised
Premium Paid =-105.35
Options Receipts = 12,688.55 (1.0358*98*125)
Underhedged = 51.79
Total Receipt = 12,634.99Could you please explain why my answer is wrong?
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