Suppose you purchased 500 shares of the fidelity nasdaq

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Suppose you purchased 500 shares of the Fidelity Nasdaq Composite Index Tracking Stock (ticker = ONEQ) on January 1 at $50 each. On March 1 the price reached $60, and you became nervous at having earned a large return in two months. Rather than sell your shares, you decide to hedge by selling June E-mini NASDAQ composite futures contracts (multiplier = 20), which settled at 1,508 on March 1.

Since the tracking stock and futures are on the same asset, the beta is 1 and the hedge ratio is: HR = INT(((500*60) / (20*1,508))*1) = 1 When the contract settles in June, the ONEQ shares are selling for $45 and the futures for 1,105. Calculate the profit on the stock and the futures from March 1 to the settle day in June

Reference no: EM13387027

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