In this exercise, you will develop different strategies to hedge and enhance your portfolio returns. In addition, you will select, value and analyze the different options and determine how they will perform in three different markets ( A) Consumer Discretionary Sector (Automobile) B) Consumer Staples Sector (Tobacco) C) Financial Sector) characterized by different volatility...
Requirements
In order to meet all the requirements for the financial analysis exercise #4, you are required to complete the following tasks:
1. Develop a strategy to use options or futures to hedge the market value and enhance the profitability of the portfolio. Identify strategies that will work best in each of the following markets:
2. Flat market – low volatility
3. Rising market – moderate volatility
4. Rising/Falling market – high volatility
5. Value the selected options for the strategies with the CBOE calculator found in Module 8.
6. Identify options that are in liquidity markets and describe the characteristics of the market and the broker’s trade book.
7. Identify the implied volatility of each option.
8. Identify the Greeks for these options.
9. How will the Greeks affect your decision to purchase these options in the different markets identified above?