StockTrak

If we comp ar our brave out and Bull imbues to abruptly and yearn striving depicts respectively we can actually show how options are exceedingly levered financial instruments, increasing breads, that excessively losses tremendously. If we had giped a Cataracts stock our profit from the value decline would have been 6. 50% per share, while with our Bear Spread we made a profit of ten times the m bingletary value of building the spread. On the other hand, If we had held a Nikkei stock we would have had a loss of 6. 27% per share from the monetary value cline, whereas our loss with the bull spread was 74. 8% if we compare it to the follow of building the spread. This figures show how option art is cheaper sexual intercourse to stock commerce, still profits or losses are much high in percentage terms. For our Butterfly, Strangle and Straddle strategies we chose Pfizer, which establish on our analysis, submited Itself as a very stable stock, with a 6-months come har m of $30. 66 and a current charge of $31. 12 (March 13th). We treasured to bet on very low volatility and make a profit from very low fluctuations from Pfizer stock.Our Butterfly parade consisted on shorting ii 32-strike thinks and fetching a retentive position on 31- strike and 33-strike inflicts. The spunk strike price of our butterfly was the exercise price of the Straddle and likewise lied exactly in the middle of the $31. 5-strike put and $32. 5-strike peal for our Strangle. In the end, our Butterfly spread turned out to be for our spread ( get word graph 3). 2. ) The article posted referrers to cover nominate makeup as taking a long position on stock and make-up a confabulate that is significantly out-of-the money.With his schema, if the call option is exercised and the investor has to sell his hares, he is covered by holding the underlying. If we compared the covered call strategy to a short natural call we can clearly see that the risk for the naked position is un strangleed if the price of the stock increases. With the covered call, by freeing long on the underlying, we cap our profit but we also limit our loss, whereas with the naked short call we are completely exposed. The analog position using puts, I. E covered put writing would mean writing a put and shorting the underlying.To execute such a strategy is possible, but the risk embedded in it is very high, because the potential asses from a price increase in the stock are unlimited. The premium gained from the put writing might not be large enough to cover the losses from the short position if the price increase is high. 3. ) For our collar strategy we selected apple stock. To execute such a trade we bought 1,000 shares at $527. 49, went long one thousand 535-strike puts and shorted the akin number of 540-strike calls twain option contracts expired on April 25.Our collar was as close to zero as possible, where the put options had a price of $16. 5 and the call options were pri ced at $17. 25. If the rice of Apple had stayed surrounded by the two designated strikes, our profit would have been the value of the stock plus the $0. 75- derivative in the midst of the option prices. At maturity Apple closed at $571. 94, message that the call option was exercised and we lost $41. 94, but we also gained $44. 45 on the price appreciation of the shares, leaving us with a net profit of (44. 45 41. 94 + 0. 75) $3. 26 per share. 4. To execute the stop- loss and delta-hedge strategies we wrote 100 at-the-money call option contracts on Backbone and Google. Our sign position to hedge both strategies was long the hares of both companies. For Backbone we used the stop-loss strategy and set dictatorial times to check our positions and hedge it. The initial cash inflow of shorting these options was $35,500 and the cost of hedging this position went up to $174,312. 51. On the other hand, with the Google options we used the delta-hedge strategy and checked the stock price 3 times a day.The initial cash inflow from shorting the calls was $54,000 and the costs related to hedging reached a quantity of $1 The amount spent for hedging the FEB.. Shares was 5 times larger than he value of the options we sold, while for Google the ratio was 20 to 1 . later on seeing these figures we can observe that hedging strategies are extremely costly, but are essential to protect short positions against risk and prevent higher losses. 5. ) To create the synthetic rep we bought Gold at spot price of $1,296 on March 27 and shorted Gold futures expiring in April the average of the wonder and bid prices for this contract was $1 ,302.Executing this transaction, we locked in our prices for a military issue of 0. 463%. The I-month exchequer bills from the U. S. Federal Reserve website is quoted at 0. 0167%, which is essentially 0%. Comparing the outcome rate from our futures contract with the I-month T-bill rate, there is an arbitrage opportunity. To go this opportunit y we would take on money at the T-bill rate of and use it to buy gold at the spot price, in addition to these transactions, we would short Gold futures to make a final profit of 0. 613%. 6. ) current pence of BIBB $ 290. 54 price of put 290 10. 30 price of call 290 13. 00 Deep in the money calls price of call 0280 9. 40 pence of put 0280 5. 42 Deep in the money puts price of call 300 7. 72 pence of put 0300 16. 8 If we look at at-the-money options and, considering that the risk free rate is essentially zero, the stock price and the present value of the strike price are practically equal, so in order for UT Call Parity to obey, the put and call price should be identical.As we can see in the quoted prices above, parity doesnt hold the call price is higher than the put. We could exploit this opportunity by going long on the put and the share, shorting the call and assumeing the present value of K. When it comes to cloudy in-the-money calls the share price is higher than the presen t value of K, so the call price should be higher than the put price by the same amount as the price differential between S and IV (K). We can see from the prices above that the call is undervalued in relation to the put.To exploit this arbitrage opportunity we would buy a call, invest IV (K) and short the put and the share. Finally, for deep in-the- money puts, the share price is lower than the present value of K, so the put price should be higher than the call price by the same amount as the price differential between S and IV (K). We can see that the put is undervalued in relation to the call. To exploit this arbitrage opportunity we would buy the put and the share, borrow IV (K) and short the call. 7. When looking at the overall performance of our portfolio and its relative risk we can conclude that it was much riskier relative to the S and also had a lower hand. If we look at the summary figures of our portfolio we can see that it had an overall return of 0. 63%, whereas the SP Y IETF had a percentage return of 1 . 19% (see Graph 4). We believe that the reason for the lower return and higher risk of our portfolio comes from several trades involving silver and platinum futures entrants that we performed to experiment with the political program and observe how these contracts behaved.In general we think that such a project is a very useful and enjoyable way to get to know the trading world. Performing actual trades allowed us to get our hands dirty and truly pick up how to build spreads and implement investment strategies. This project gave us the opportunity to go beyond the theory and heartyize that trading can sometimes be more complicated that it seems on paper, but can also produce much clearer once the theory is implemented in a real world setting. We very much enjoyed working on this project.