Hedging & Stock Index Futures

You short sell a stock and would like to avoid a short squeeze. Describe how you would form a collar so as to avoid a short squeeze but also reduce your “insurance” cost. Give an example to show in a table that the amount you will have to pay to cover your short sale is collared between two values no matter what happen to the underlying stock price, and in the example clearly state the exercise prices of the options. The stock I picked is Lockheed Martin. If it does not work for you, pick whichever stock. Use the data from Yahoo Finance.




























Sample Solution