• May 2nd, 2015

Derivatives & Risk & Finance

Paper, Order, or Assignment Requirements



You are required to answer all three elements of the question.

1. The investment management department of your company has asked you to construct a speculative trading strategy using options for a £50,000 investment in a single FTSE 100 company’s shares for the 38 working day period between the 23rd February 2015 and 17th April 2015 (inclusive). 


The department has stipulated that your choice of strategies as one of either a:
1. Butterfly, or 2. Condor, or
3. Strangle, or 4. Strip, or
5. Strap, or


a) Supported with real market data as well as suitable academic literature, for the shares you wish to create an options trading strategy for, set up an options-based trading strategy (STRAPS STRATEGY) ) given your view of:
» the company,
» current market sentiment regarding the segment in which it operates
» and likely market movements over the period.

You must include “SCREEN SHOTS”’ evidence the source of your options pricing in a suitably referenced appendix.

Describe the reasons why your chosen strategy is appropriate for the company you have identified and researched 

and present the expected profit/loss (PAY OFF) of your trading strategy using both a table and a graph.
(1,000 Words : 40 Marks)

The structure in part A:
• Economic analysis
• Industry Analysis
• Technical Analysis ( EMA & SMA stock charts for BT and assume any period): http://stockcharts.com/h-sc/ui?c=BT.L,uu[h,a]daclyyay[pb50!b200!f][vc60][iue12,26,9!lc20]
• News about BT ( referenced ) 
• Reasons for choosing straps

b) What is the annualized return that you are targeting based on your approach? 

Assess the risk that your strategy will not produce the returns you have anticipated as well as the risks that the use of such derivative has introduced to the company for whom you have created the strategy?
( 500 Words : 20 Marks)

c) Report on the actual profit and loss (PAY OFF) of your strategy over the period and analyze and describe why your strategy achieved the results observed.
( 500 Words : 20 Marks)

The assignment should be word processed within the limit of 2,000 words (excluding appendices, tables, charts and graphs). 

The word count must be stated in the assignment. References to relevant academic theory and research findings should be provided and referenced appropriately.

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