Author Question: You have $10,000 to invest and you are considering short selling shares of Oceanic Airlines or ... (Read 312 times)

a0266361136 · **on:** Apr 25, 2021

You have $10,000 to invest and you are considering short selling shares of Oceanic Airlines or purchasing 10 put options on the shares. The stock price is currently $100. If you short sell, then your broker requires you to deposit 50% margin into your brokerage account. So, you can afford to short sell 200 shares of Oceanic. The proceeds will be deposited in your account and you will have to deposit an additional $10,000 of margin. The put option expires in six months, has a strike price of $100 and has a premium of $10 (per share). Assume that the stock price falls to $75 by the option expiry date. What is the ratio of the rate of return on the puts over the return on the short sale? In the case of the short sale, treat your margin deposit as your investment.
◦ -10.00
◦ 1.00
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◦ 5.00

Swizqar · **Reply #1 on:** Apr 25, 2021

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