On Oct. 5th, Reem purchased 2500 shares of Mediterranean Co. stocks at €35 per share and 1500 shares of KFD at €28 per share. According to financial analysts’ report, in the coming three months Mediterranean and KFD stock prices may decline. To hedge herself Reem purchased two American option from Amro expired after three months, paid €3.5 for Mediterranean exercise price was €35 and paid €3.3 for KFD exercise price was €28. On Nov 20th, Mediterranean and KFD stock prices were €41.25 and €23 respectively.
a- What is the type of the option contracts?
b- Analyze Reem position on Nov 20th.
c- Analyze Amro position on Nov 20th.
The question belongs to Finance and it discusses about the use of options in stock price speculation. A person who buys stock from two companies and realizes that the stock prices might decline in the near future and purchases options. The position after the expiry of the options has been analyzed.
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