Evaluate strategy with respect to rajesh investment goals

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Rajesh, a manager at Infosys Technologies Limited, received 2000 shares of company stock as part of his compensation package. The stock currently sells for Rs. 3000 a share. Rajesh would like to defer selling the stock until the next January. In February, however, he will need to sell all his holdings to provide for a down payment on his new house. Rajesh is worried about the price risk involved in keeping his shares. If the value of his stock holdings falls below Rs. 55,00,000, his ability to come up with the necessary down payment would be jeopardized. On the other hand, if the stock value rises to Rs. 65,00,000, he would be able to make a small cash reserves even after making the down payment. Rajesh considers the Strategy to buy February put options on Infosys with strike price Rs. 2750. These options also sell for Rs. 100 each.

Problem 1: Evaluate this strategy with respect to Rajesh's investment goals. What are the advantages and disadvantages of this strategy.

Reference no: EM132887334

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