seagull option

CFA Level III Portfolio Management
#1

hi fellows, I got one Q from the CFA website

Asset Allocation - Campos Q6

the answer says, Strategy 1, the short seagull on the AUD only provides downside protection to BRL/AUD 2.1006 (when the short put kicks in and neutralizes the hedge), not BRL/AUD 2.0355.

where can u get the 2.1006? also, the “core” of this short seagull should be the long put at 2.1046, why the two “wings” strike are not around the “core” strike(each side one “wing”) but both are rather placed on the one side of the “core”(both have strike higher than 2.1046)?

many thanks!

#2

I think it should be BRL/AUD 2.1356. The q here is that the proposed strategies are taking advantage of the market move expected or not and lower the hedging costs. For segull, I do not think there is anywhere stated that it has to be around certain strike.