DERIVATIVES & RISK MANAGEMENT: OPTIONS ASSIGNMENT

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DERIVATIVES & RISK MANAGEMENT: OPTIONS ASSIGNMENT

 

DERIVATIVES & RISK MANAGEMENT: OPTIONS ASSIGNMENT

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This assignment is due by Monday, March 19th 2023. Please upload your assignment to Blackboard as an Excel or ZIP file. Answer ALL questions.

 

  1. Go to Yahoo Finance: http://finance.yahoo.com/ and look up Tesla options: https://finance.yahoo.com/quote/TSLA/options/

Note the share price on the day you do this assignment (note the date, but do this before March 19). Go to the March 172023 calls and puts prices on the same date (choose your own strike prices).

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Use your own examples to construct the following strategies.

 

Using Excel, write out the tabular payoff matrix in each case:

  1. Bear spread using puts
  2. Bull spread using calls
  • Long butterfly spread using calls
  1. Straddle

 

  1. On February15th2023, the CBOE’s VIX index http://www.cboe.com/vixwas trading at 18.58. Explain how you would interpret this figure in terms of the US stock market. DERIVATIVES & RISK MANAGEMENT: OPTIONS ASSIGNMENT

 

NB: Form your own view as to whether VIX will increase or decrease from this level by the end of March 2023. Assume you will trade 100 options.

 

Using your own strike prices from the following options chain http://www.cboe.com/delayedquote/quote-table?ticker=vix  analyse fully any two (2) strategies based on VIX options that you could employto profit from this opinion.

 

Other strategies are here http://www.cboe.com/strategies/product-specific-strategies/vix

 

In addition, explain any 1 strategy that you could employ using VIX futures to profit from the same view https://www.cboe.com/products/futures/vx-cboe-volatility-index-vix-futures

 

NB: Calculate the subsequent profit or loss on your strategy on or beforeMarch 19, 2023. Note you will need to use the appropriate multipliers for VIX options and futures. DERIVATIVES & RISK MANAGEMENT: OPTIONS ASSIGNMENT

Explain briefly what factors(risk, reward, cost, etc.) you considered in designing theseVIX strategies.

  1. Go to the CBOE website http://www.cboe.com/delayedquote/quotes-dashboardand locate options prices for Visa (V)

http://www.cboe.com/delayedquote/detailed-quotes?ticker=V

 

Find the current share price (the latest price on the day you do this assignment)

 

Using your own selected April2023calls and puts data, use Excel to implement the following trading ideas:

 

  1. i) Suppose you are bullishabout this share. Describe a speculative option strategy that allows you to profit if your market expectations are correct, but protects you from large downside risk in the event that you are incorrect. List each trade in detail and provide profit diagrams of each option and the net position.

 

  1. ii) Suppose you expect prices to remain stable for the period covered by the contracts above. Describe a speculative option strategy that would allow you to profit from this. Again, list each trade and graph each option’s profit diagram as well as the net position.

 

iii) Suppose instead that you believe this market will be very volatile in the near future. You do not know whether the price will go up or down, but you feel the price is about to have a big move one way or the other. Describe a speculative option strategy that would allow you to profit from this. Again, list each trade and graph each option’s profit diagram as well as the net position. Estimate how big a price move is required to earn a positive profit on your position.

 

NB: For each strategy, explain how the strategy is created; the maximum profit; the maximum losss; the breakeven stock price at expiration; and show the Profit/Loss diagram and table in Excel

 

Notes:

  1. a) This is essentially what Fidelity gives on its Options Strategy Guide https://www.fidelity.com/learning-center/investment-products/options/options-strategy-guide/

 

  1. b) There are bid-ask spreads to consider. In other words, if you are buying a call or put option, you have to pay the ask price, whereas selling an option involves the bid price.

 

  1. c) You should obviously use the calls and puts with a greater open interest and volume as these will have prices attached.
  1. d) In addition to Excel, use any online Options Calculator to show your results.

4.Suppose, given recent movements in Nvidia shares, a trader wishes to implement 3 volatility trading strategies using options.

NB: You can find the full list of Volatility strategies in Section 4 of Guy Cohen’s book “The Bible of Options Strategies”

Use any relevant website, e.g.https://www.barchart.com/stocks/quotes/TSLA/optionsor https://finance.yahoo.com/quote/TSLA/options?p=TSLAfind the price of the options on the day you complete the assignment. 

For each strategy, in Excel draw a diagram showing the variation of the trader’s profit with the stock prices.

 

 

  1. Using https://optionstrat.com/ choose any 3 strategies from the list – 1 Intermediate, 1 Advanced, and 1 Expert – to trade your opinion as to what will happen to the NASDAQ (NDX) between now and the end of March 2023.

 

For each strategy, explain how the strategy is created; the maximum profit; the maximum losss; the breakeven stock price at expiration; and show the Profit/Loss diagram and Profit/Loss (%) table using the information from OptionsStrat.com

 

NB: You do NOT need to show this in Excel – take screenshots and explain the risk/reward trade-offs involved in deciding which strike prices and options you selected to implement the strategies.DERIVATIVES & RISK MANAGEMENT: OPTIONS ASSIGNMENT