Determine zero-cost strategy

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Reference no: EM131937861

You presently own $1mm of an S&P 500 index portfolio. You are nervous about the market and are looking for alternatives to just owning this portfolio.

Utilizing the data provided above, determine a zero-cost(using rounding) strategy that will allow you, at the end of 1 year, to make money an equivalent amount of money were you to keep your existing portfolio in a rising stock market but lose nothing if it falls.

The S&P 500 is presently trading at 2050 and the 1 year T bill is yielding 5.1293%.

A 1 year 1850 strike call is 8.50

A 1 year 1950 strike call is 7.00

A 1 year 2050 strike call is 6.0

A 1 year 2150 strike call is 5.0

A 1 year 2250 strike call is 4.0

In what scenario does your plan work? Not work?

Reference no: EM131937861

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