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What would be the maximum possible overall net return

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Question - ACM is satisfied that this is a close enough match to the Russell 2000. EIA is not so sure but believes that the risk is worth taking. So the collar is executed.

During the final three months of the year, the market surprisingly continues to perform really well. The portfolio rises 12.5 percent to $939,375. The Russell 2000, however, outperforms the portfolio, increasing at a 16.05 percent rate to 1,938.

Required -

Q1. Design the Collar Strategy using Russell 2000 index as the underlining asset, state and calculate the Call and Put Option positions (long or short) and levels (strike prices) that EIA should take based on ACM's situation?

Q2. What would be the Maximum Possible overall net return (in %) for the portfolio combined with the Collar Strategy that EIA implemented?

Q3. What was the Actual overall net return (in %) for the portfolio combined with the Collar Strategy that EIA implemented?

Q4. Has the portfolio combined with the Collar Strategy that EIA implemented actually earned the maximum possible overall net return which you calculated in Q2 and Q3? What happened and Why? Do you believe that ACM would be satisfied with the performance of its portfolio combined with this Collar Strategy implemented by EIA?

Reference no: EM133168932

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