Pine Street Capital Guiding Questions

The following questions aim to stimulate your thoughts about how to address the case:

1.   What is the structure of a hedge fund? What can hedge funds do that mutual funds cannot?

2.   What risks does PSC want to hedge and what risks is PSC willing to bear? Why? How would you hedge these risks on July 26 using a short-selling strategy? What problems arise with the short-sale strategy?

3.   PSC is considering using options for its hedging program. How does options hedging help with PSC’s problems? How would you hedge PSC’s portfolio using options on July 26?

4.   Can options-based hedging of market risk help with these problems? How?

5.   How would one hedge PSC’s portfolio on July 26 using options?