Chief executive officer (CEO) Marjorie Kesich has requested that you create a PowerPoint presentation detailing the differences between using futures contracts and options contracts to reduce risk. She wants to know if there are any advantages to using one of the instruments over the other. Discuss the following:
- Is one of these more effective than the other?
- Are the costs of each different?
- Calculate how many call options contracts would be needed if you were trying to hedge a portfolio of 200 shares of stock.
The answers to these questions will have an effect on the bottom line of the firm. Make sure to provide concrete explanations of each, and create examples where it would be more appropriate to utilize an options contract over a futures contract and vice versa. Your presentation should be between 8–10 slides.