Option Trading Assignment
Part 1:
Part 1 was already finished and attached in the file-------------
Make sure that you choose a company for which a large number of options are traded and in particular, there are MULTIPLE options with an October 20, 2017 maturity. You may not choose a company that does not have MULTIPLE options traded with an October 20, 2017 maturity.
First verify that there are options traded for your company with an October 20, 2017 maturity. Go to Yahoo finance and print the following (make sure you have two copies, one for Professor Mooradian and one for you to keep. It is very important that you keep a copy.): the current stock price, the current option premiums (or prices), both bid and ask (You sell at the bid and buy at the ask.), for all options (all strike prices and all calls and puts) with an Oct 20 maturity.
The first part of your assignment is complete when you turn in your print out with the current stock price and all of the current option premiums (or prices) with Oct 20, 2017 maturity only ------------------ the company i chose is Micron Technology _MU-------------
Part 2:
The second part of the assignment is to research your company. You will not want any ancient history. Very old historical information about your company is unhelpful. When researching your company, keep in mind what you learned about market efficiency in your Investment Analysis class. What you want to find are any indicators or clues (all very recent information) about near future stock price changes. Is there any new information about the company that is likely to be announced between mid-Sept and Oct 20, the maturity date of the options? If so, what is it? This is the basis for your beliefs (or forecast) of the stock price on Oct 20.
Note that your research is very critical in determining your beliefs; however, you do not include your research in your Sept 27 deliverable. Your research will be the basis for your beliefs; however, your research will only become part of your presentation that will come after Oct 20.
You must turn in a brief statement which states your beliefs about your company's stock price on Oct 20. Your beliefs must state 2 prices, prices that are also (or close to) strike prices on options for this stock. Examples of what you might state include the following:
1) We expect the stock price (if for example currently $20) to increase to above $25 or to fall below $15.
2) We expect the stock price to increase to between $25 and $30.
3) We expect the stock price to decrease to between $10 and $15.
4) We expect the stock price to remain between $18 and $22.
5) We expect the price to increase to above $25 or decrease to below $15 but the decrease is more likely. THIS WILL BE YOUR PRIOR BELIEFS.
Note that you do not need to include your research in this deliverable, but it is advisable to do your research before setting your prior beliefs. Once set, you cannot change your beliefs and they will determine whether your strategy is successful.
On Oct 20 you will need to get the stock price for your stock to be able to calculate the payoff on all expiring options.
Part 3:
To complete the third part of the assignment, turn in a print out (make sure you keep a copy) with the stock price for your company on Oct 20.
The fourth part of the assignment is to choose an option trading strategy that involves at least two options that mature Oct 20. You must choose a strategy that involves a cash outflow at the time you enter into the strategy. NOTE THAT YOUR OPTION TRADING STRATEGY MUST BE CONSISTENT WITH YOUR PRIOR BELIEFS.
Part 4:
Calculate the profit from your option trading strategy on Oct 20.
Part 5:
The group will need to schedule a 10 minute presentation (schedule with Professor Mooradian) for a class meeting date after Oct 25. We can have at most two presentations on any day, so schedule your date as soon as possible. If you wait until the last minute to schedule your presentation, you are unlikely to get your preferred date.
Part 6:
Prepare and present your option trading strategy and its profit or loss. Be prepared to explain your strategy, your reasons for selecting the strategy to the class, your profit or loss, and explain why you either made or lost money. Is there something that occurred in September or October that helps to explain why you made or lost money? To do this you will need to research events related to your company just prior to option expiration. Explain the conditions under which you would make a profit and the conditions under which you would make a loss. The target audience for your presentation is your classmates. They will ask you questions (and will be graded on the quality of their questions) about your strategy. If your classmates cannot follow your explanation, the highest grade you can receive is a "C" for this assignment.
Attachment:- MU-Options-Memo.rar