§ Delta neutral hedging strategy
A portfolio is worth 90 million. To protect against downside movement manager require 6 months put European option at a strike price of 87million.
Risk free rate of return = 9%
Dividend yield = 3%
Volatility = 3%
S&P 500 index stands at 900.
After all the calculation made it was find that delta of the required option is -.3215;
This shows that 32.15% of the portfolio should be sold to match the delta of the required option.
If after single day value of the portfolio is reduced to 88 million& the delta of the option is changed to .3679 & further 4.64% of the original portfolio should be sold.
Can please suggest me the appropriate entry.
§ Under the para 4 of IAS-39,the standard is not apply to the contracts that were entered into and continue to be held for the purpose of the receipt or delivery of a nonfinancial item in accordance with the entity’s expected purchase, sale or usage requirements(i.e, executory contract)
Again the implementation guidance on this standard in section A-1, it has been stated that executory contract are not with in the scope of AS-30.
Can you please suggest how this will be accounted (whether it is to be booked or not) under the same story of A-1 of AS-30.
Please make the journal entry.