Michael Stevens Option Strategy Essay examples

Swan-Davis, Inc. (SDI) manufactures equipment for sale to large contractors. The company was founded in 1976 by Tom Stone, the current chairman, and it went public in 1980 at $1 per share. The stock currently sells for $15, Stone owns 14 percent of the shares, and other officers and directors control another 13 percent. The industry is cyclical, and competition is strong, so profits are some-what unstable. Tables 1, 2, and 3 provide historical balance sheets, income statements, and ratios for the company for the period 1994–1996, Table 4 provides industry average data for 1994-1996, and Table 5 provides one security analyst’s forecasted data for the company based on assumptions

Critically evaluate the assumptions on which your forecasts are based. What developments could alter your results? Is Mr. Cowins correct in his belief that Hampton can repay the loan in December?

Although the inflation rate was 3.6% we decide not to make any changes in the price and we kept it as what it was $5.29. In this period Ethik announced the introduction of End+ which was$ 5.69 but we still decided to keep our price for Allround+ $4.99 .The prices of Allround and Allround + should have been increased in correlation to inflation .Our stock price went down from $39.32 to $35.14 per share. We purchased sales force, advertising, promotion, channel sales and pricing reports to help us with our decisions in this period.

Options strategies share a similar defect with forward sales. That is the weakness of getting the maximum profits that are available when the price goes up or indeed has the potential to rise. “By adjusting the exercise prices and ratios of puts and calls, American Barrick could determine the degree to which it chose to participate in gold price sales”. However, options contracts are usually not longer than 5 years and only contracts with maturities under 2 years have high liquidity. Thus, the time spread of it is far shorter than the 20 years of expected production currently in reserve. Taking these factors into consideration, we think options contracts are good for American Barrick to hedge risk in short-term period.

Week 1 – Introduction – Financial Accounting (Review) Week 2 – Financial Markets and Net Present Value Week 3 – Present Value Concepts Week 4 – Bond Valuation and Term Structure Theory Week 5 – Valuation of Stocks Week 6 – Risk and Return – Problem Set #1 Due Week 7* – Midterm (Tuesday*) Week 8 - Portfolio Theory Week 9 – Capital Asset Pricing Model Week 10 – Arbitrage Pricing Theory Week 11 – Operation and Efficiency of Capital Markets Week 12 – Course Review – Problem Set #2 Due

It is often said that perception outweighs reality and that is often the view of the stock market. News that a certain stock may be on the rise can set off a buying spree, while a tip that one may be on decline might entice people to sell. The fact that no one really knows what is going to happen one way or the other is inconsequential. John Kenneth Galbraith uses the concept of speculation as a major theme in his book The Great Crash 1929. Galbraith’s portrayal of the market before the crash focuses largely on massive speculation of overvalued stocks which were inevitably going to topple and take the wealth of the shareholders down with it. After all, the prices could not continue to go up forever. Widespread speculation was no doubt a

These market conditions continued for an extended period of time, causing me to start losing money for the firm for the first time since I started. Having been in the markets

In order to set the option pricing model, other basic assumptions have been used such as the market is efficient and frictionless which means that people cannot predict with consistency the direction of stocks in the financial market; no tax or transaction costs occur and there are no legal restrictions on trading in the options and in the underlying asset, or on short-selling the asset (Data and Mathews, 2004; Jiang, 2005). The BSM model also assumes that the market is arbitrage free which indicates there

‘The Capital asset pricing model (CAPM) is a very useful model and it is used widely in the industry even though it is based on very strong assumptions. Discuss in the light of recent developments in the area.’

Established in January 1999, Pine Street Capital (PSC) was a market-neutral hedge fund that specialized in the technology field, facing market risk and trying to decide whether and which way to use in order to hedge equity market risk. They choose technology sector because the partners of PSC felt that they have enough ability to evaluate this sector and specially be good at picking out-performing stock. Short-selling of NASDAQ and options hedging strategy are the two major hedging choices for PSC. Either strategy has its own advantages in different economic periods and conditions. The fund has just through one of the most volatile periods in NASDAQ 's history, and it was trying to decide whether it should continue its risk management

The historic average returns from 1950 to 1996 and from 1929 to 1996 are given In Exhibit 3. We chose the latter time period as we considered it would give us a more reliable estimate of the risk-free rate by discounting both the Second World War and the Great Depression. It is necessary to evaluate the expected length of the project and utilize a risk free rate applicable for the same time period. Ameritrade is investing $100 million dollars in technology, which is considered a long-term investment, in order to become the largest brokerage firm. We consider their

Index Options are derivatives whose underlying security is not a single stock but a basket of securities called an index .The index could be either a Market Capitalization Weighted Index or Equal dollar Weighted Index. Index options provide investor the opportunity to trade the whole broad based market without much hassle and little capital .The investor can either trade in broad based indices like S&P500 or narrow based indices like sector specific index. The most popular index options in the US are : the S&P 500 Index Options (CBOE:SPX), Russell 2000 Index Options, CBOE Volatility Index (CBOE:VIX), the Nasdaq-100 Index (NASDAQ:NDX) and the S&P 100 Index Options (CBOE:OEX).

2. If the NASDAQ index falls, an increase in the value of the puts may approximate the loss in the portfolio’s value. The protective put limits the portfolio’s downside

market was as late as 1994, so do we really know enough about the long

0175/660 4977 E-Mail: ronald.fortmann@gmail.com 1 Table of Contents I.   Assignment & Introduction ..................................................................... 4   II.   The first transactions (February 9th 2015)............................................. 5   III.   The leveraged effect of options’ discovery ......................................... 7   IV.   Gains securitisation and