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1) design and development of an option trading strategy. Pick a stock and design an appropriate...

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Finance

1) design and development of an option trading strategy.

Pick a stock and design an appropriate option trading strategygiven your view of the market. Provide the following analysis:

a) Fundamental and technical analysis with supporting evidencesuch as graphs.

b) Rational for option strategy, including time horizon, strikeand moneyness.

c) risk-return analysis, i.e.: max reward, max risk, break-evenprice, payoff/P&L diagram and degree ofbullishness?bearishness.

Answer & Explanation Solved by verified expert
3.8 Ratings (443 Votes)

call option
Let the call option is taken at premium of 5 at price of 200
Exercise price                                                  200.00
future selling price inflow due to call option permium net outflow
                            150.00 we don’t exercise at situation -5 -5
                            160.00 we don’t exercise at situation -5 -5
                            170.00 we don’t exercise at situation -5 -5
                            180.00 we don’t exercise at situation -5 -5
                            190.00 we don’t exercise at situation -5 -5
                            200.00 at this option we at neutral -5 -5
                            210.00                                                    10.00 -5                5.00
                            220.00                                                    20.00 -5              15.00
                            230.00                                                    30.00 -5              25.00
                            240.00                                                    40.00 -5              35.00
question Answer
Rational for option strategy it is rational when future selling price is greater than 205
strike when future selling price is more than 200
Risk limited to premium
Return unlimited
break even price 205
call option holder always bullish

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1) design and development of an option trading strategy.Pick a stock and design an appropriate option trading strategygiven your view of the market. Provide the following analysis:a) Fundamental and technical analysis with supporting evidencesuch as graphs.b) Rational for option strategy, including time horizon, strikeand moneyness.c) risk-return analysis, i.e.: max reward, max risk, break-evenprice, payoff/P&L diagram and degree ofbullishness?bearishness.

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