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You are considering a futures position in the futures contract written on the STAR Index. This...

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Finance

You are considering a futures position in the futures contractwritten on the STAR Index. This is an index consisting oftechnology stocks that specialise in inter-planetary travel, andthe current index level is 18,746. Assume that is possible to shortsell the index. The future value of dividends expected to be paidover the next year is $376 and the 1-year interest rate is 4%.

d. It is also possible to trade in options contracts on the STARIndex. Briefly distinguish the key distinctions between futures andoptions contracts.

Answer & Explanation Solved by verified expert
4.1 Ratings (674 Votes)
Ans A Yes it is possible to trade in options in an index futures as option as a hedging strategy was basically developed to be based on index and later on options on individual stocks and currency was developed In the above case if one wants to trade on options and is expecting STAR index to go up can buy call option of index or sell put options and if one wants to have a    See Answer
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