...Bern University of Applied Sciences Business Option Strategies – A practical Guideline for Retail Investors Bachelor Thesis Submitted within the study program Bachelor of Science in Business Administration By XXX For the module Bachelor Thesis (BTHE) Instructor XXX Co-Supervisor XXX Submission date Friday, 16 May 2014 “Option strategies – A practical Guideline for Retail Investors” Acknowledgment The development of this paper has been observed and accompanied by instructor Professor XXX and co-instructor Professor XXX of the XXX. Both of the tutors shall be thanked gratefully at this point. Furthermore I would like to acknowledge the interviewees for their advices and information, who made it possible to complete this bachelor thesis. 2 “Option strategies – A practical Guideline for Retail Investors” Management Summary This bachelor thesis examines option strategies and what costs and fees an individual investor will be confronted with when trading such instruments in Switzerland. In theory, option strategies are an interesting and multifunctional instrument for every market direction. However, in practice, there are several difficulties which retail investors have to overcome. For example, they have only limited available assets for trading and thus the margin of the broker and the transaction costs significantly influence the potential profit (economies of scale). There are also legal restrictions like naked...
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...The Porter’s generic strategies are defined by basic approaches to strategic planning that can be adopted by any firm in any market or business to improve its competitive performance edge. The three fundamental marketing strategies that are thought of as different, are not mutually exclusive are differentiation strategy, focus strategy, and low cost strategy (www.businessdictionary.com). The first approach is called cost leadership which is better known as no frills just best deals concept. This concept is often a consumer’s delight. Because as consumers’ we like receiving great services at lost cost. The second is differentiation which creates a uniquely desirable products and services. Third is focus which is offering a specialized service in a niche market. A good niche has five qualities to them and they are as follows. It will take you where you want to go. In other words, it conforms to your long-term vision. Usually someone else wants it namely, customers. It carefully planned. It’s one of a kind “the best one in town”, and it evolves, allowing you to develop different profit centers and still be able to retain the core business which commonly ensure long-lasting success (www.entrepreneur.com) and according to the daily news U.S airlines has always had a clear cut strategy that if you can’t be number one or set a serious presence, then why be there? (www.dailynews.com) Lastly according to the Porter’s strategies to become effective, the business goals, objectives, culture...
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...you have been asked to evaluate different compensation strategies that are available for adoption within your organization. Compare and contrast at least three compensation strategies and determine recommendations for how they may be implemented within your organization. Name: Henry Rivera I.D. #: 000318961 Reference Title Finding #1 Godfrey, W. (2013, January). Compensation Strategy for Success. Prezi. Retrieved from http://prezi.com/j9k9_m_2qiwn/compensation-strategies-for-success/ Sager, Suzanne. (2011, September). Merit Pay Most Often Used in Compensation in Public and Academic Librarians. Library Worklife. Retrieved from http://ala-apa.org/newsletter/2011/09/01/merit-pay-most-often-used-in-compensation-for-public-and-academic-librarians/ Ojimba, E. (2004, November 15). Salary Basics – Developing a Strong Compensation Strategy. Salary.com for Business. Retrieved from http://www.salary.com/Small-Business-Advice/advice.asp?part=par410 Finding #2 McGladrey. (2011). Lessons from Recession Increasing Focus on Incentive Compensation Programs. Retrieved from http://mcgladrey.com/Perspective/Lessons-from-recession-increasing-focus-on-incentive-compensation-programs University of Wisconsin – Green Bay. (2013, April 9). Compensation Philosophy. Retrieved from http://www.uwgb.edu/hr/documents/CompPhilosophy0401.pdf Finding #3 Gerhart, B., Milkovich, G.T., & Newman, J.M. (n.d.). Compensation Strategy. Answer, McGraw Hill. Retrieved from http://mhanswers-auth...
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...Explain how the option pricing formula developed by black and scholes can be used for common stock and bond valuation. Include in your discussion the consequences of using variance applied over the option instead of actual variance. Its generally known that Black and Scholes model became a standard in option pricing methods , with almost everything from corporate liabilities and debt instruments can be viewed as option (except some complicated instruments), we can modify the fundamental formula in order to fit the specifications of the instrument that will be valued. An argument done by Black and Scholes which was based on the past proposition of Miller and Modigliani a well as assuming some ideal conditions, States that value of the firm is a sum of total value of debt plus the total value of common stock. As well as the fact that in the absence of taxes, the value of the firm is independent of its leverage and the change of debt has no effect on the firm value. V = E + Dm V: value of the firm. E: shareholders right (common stock values). Dm: market value of the debt. As the above equation impose that Equity (common stock values) can be viewed as a call option on the firm value (due to the shareholders limited liability and with consideration that firm debt can be represent as a zero-coupon bond), where exercising the option means that equity holders buy the firm at the face value of debt (which is in this case will be the exercise price of the option), on the liquidation...
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...RISK MANAGEMENT ASSIGNMENT – II By: ATTIKA RAJ, ROLL NO: MS10A009, MBA- 2012 BATCH, DOMS, IITM 2/21/2012 I. Case Analysis – Risk management Policy of Lufthansa Submitted in Assignment 1 II. Case Analysis: Commodity Market Derivatives Case Solutions: 1. Discuss the risk exposure of Amarnath hedge fund. Ans: The Amaranth hedge fund was exposed to following risks: a. Market risk: The risk that occurs from the volatility of investment returns b. Liquidity risk: It measures the degree of difficulty in exiting a given trading position c. Funding risk: It measures the extent to which they were able to meet margin calls on their natural gas position d. Capacity risk: The risk due to putting too much money into one particular strategy 2. What are the negatives to rolling a spread position? Ans: Negatives to rolling a spread position are: When rolling a spread position the investor expects the following months to which the contract was rolled over to be favourable and thus be able to unload its positions. But, if the market moves in a direction opposite to the one anticipated by the investor it can result in huge losses. Also, if the risk increases for a spread position with the increase in the leverage. In the case of Amaranth hedge fund, it had rolled its short positions prior to august into the next month, hoping that market conditions would change and enable it to unload its positions. There were now no more summer months into which it could roll these positions....
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...Exploiting Volatility In the times of recession and variability with the market getting volatile with very far glimpse of normalcy being stored, it would not be a good suggestion to just sit and watch rather it would be a better strategy to make ways to scale up the investment by learning to exploit volatility by diversifying asset allocation, rebalancing portfolio and option strategies. High return volatility definitely increases the fluctuation of the asset class weightings around the target allocation and increases the risk of significant deviation from the target but greater volatility also results in compounded returns . It is substantiated by the situation when the government is spending trillions of dollars to stimulate the growth in the economy and the corporate world is moving ahead with aggressive restructuring. Volatility can be exploited by diversifying the portfolio with bonds as bonds and equities are well correlated and the bonds in the portfolio also dramatically reduces the risk during financial crises. There would be loss but by a lower percentage than in the situation of all equity or lower bond ratio portfolios. The second situation is to avoid risk of market concentration when there is subsequent rise in equity market and then sudden collapse. For this systematic rebalancing is very advantageous as it reduces the downside risk by reducing volatility and investors increase long term portfolio performance by creating alpha and reducing risk. This approach...
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...world market for a profit. Some countries even have an immediate market for their minerals like oil and gold. Almost all LDCs and a number of the other countries that needed bail out funds, have these resources that can be sold for profit. However in a situation where quick funds are needed, selling these resources would take a considerably long period of time which is not available at that instance. This can be remedied by the sell of long term covered call options on the resources of the different countries that need the funds. An options strategy is when an investor holds a long position (owns the asset: in our case mineral) in an asset and writes (sells) call options on that same asset in an attempt to generate increased income from the asset. This strategy is often employed when an investor has a short-term neutral view on the asset and for this reason holds the asset long and simultaneously have a short position via the option to generate income from the option premium.By selling Long term covered call options, the country makes money that not only can be used to fund bailouts but can also be used for other budgetary expenditures. To expand on this...
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...Derivatives Markets: Futures and Options December 9, 2013 Authored by: Kelly Smith Derivatives Markets: Futures and Options December 9, 2013 Authored by: Kelly Smith | Silver Bear Put Spread | | An investment strategy to capitalize on a forecasted weakness in the silver spot market | | Silver Bear Put Spread | | An investment strategy to capitalize on a forecasted weakness in the silver spot market | Hypothesis – Silver Prices Forecasted to Decline Based on key macro and micro economic indicators relevant to the silver market, I conclude that spot silver prices will continue to decline in both the short and long term. Several noteworthy firms also support this hypothesis, including UBS, CPM Group, and HSBC Holdings. UBS, for example, lowered their 2014 silver price forecast December 2, 2013, citing that “the new year will likely tempt investors to move out of precious metals into other assets.” They lowered their average price expectations for silver from $25 previously to $20.50/oz. for 2014 and from $24 to $21 in 2015. For the purpose of this assignment, I am assuming the role of a speculator. As such, I will open a Silver Bear Spread with the intention to capture a significant short-term profit – the intended result based on my hypothesis that silver prices will continue to trend lower. Silver Supply and Demand Economics Industrial demand growth, driven by technology advances for several decades, appears to have plateaued. In...
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...Abbot - Alza Case - Term Papers - Baskakov 13/2/21 上午12:38 Hi rogercheng64 Essays Book Notes Citation Generator More Search 990 000 Essays Essays » Business & Economy » Marketing & Advertising Abbot - Alza Case Report | By baskakov, Jun 2012 | 4 Pages (860 Words) | 63 Views| This is a Premium essay for members like you Risk arbitrage (or merge arbitrage) is a trading strategy related to M&A transactions. For example, if an M&A transaction is carried out by means of share exchange between the buzzer and the target, then an arbitrageur may short sell buyer’s stocks and purchase stocks of the target. Until the acquisition is completed, the stock of the target typically trades below the purchase price. After the merger is completed, the target's stock will be converted into stock of the acquirer based on the exchange ratio predetermined in the merger agreement. The arbitrageur delivers the converted stock into his short position to complete the arbitrage. In an efficient capital market, the price of the target and acquirer will fully and immediately reflect the terms of the merger. However, risk arises from the possibility of deals failing to go through. Such possibility put the risk in the term “risk arbitrage”. Green circle had USD 500 million in AUM with 5% upper bound of position in a distinct investment (or 25 million). Smith arbitrage position was within the bounds or 13.5 million in short Abbot and 12.5 million in long position for Alza stocks...
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...A Handbook on Derivatives © Rajkumar .S Adukia B.com (Hons.), L.L.B, AICWA, FCA radukia@vsnl.com/rajkumar@gmail.com 093230 61049/ 093221 39642 www.carajkumarradukia.com If interested in receiving similar technical updates subscribe to carajkumarradukia-subscribe@yahoogroups.com PREFACE Derivatives have changed the world of finance as pervasively as the Internet has changed communications .Well they are everywhere nowadays. The most significant event in finance during the past decade has been the extraordinary development and expansion of financial derivatives. These instruments enhance the ability to differentiate risk and allocate it to those investors who are most able and willing to take it -- a process that has undoubtedly improved national productivity, growth and standards of living. Derivatives products provide certain important economic benefits such as risk management or redistribution of risk away from risk-averse investors towards those more willing and able to bear risk. Derivatives also help price discovery, i.e. the process of determining the price level for any asset based on supply and demand. All markets face various kinds of risks. This has induced the market par-ticipants to search for ways to manage risk. The derivatives are one ofthe categories of risk management tools. As this consciousness about risk management capacity of derivatives grew, the markets for derivatives...
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...Options Theory Applied to Alternative Energy Industry Christina Clowdus Bus: 630 March 20, 2012 Dr. Shaw Introduction In life, you always have options. It is no different in capital investment. In today's unpredictable business world, managers recognize how risky the most valuable investment opportunities often are, and how useful a flexible strategy can be. That's why they want to know all their options. Yet many current financial assessment tools fail to identify what investors can do to capitalize on future uncertain events. “Managerial flexibility to adapt and revise future decisions in order to capitalize on favorable future opportunities or to limit losses has proven vital to long-term corporate success in an uncertain and changing marketplace” (Brennan, M.J. and E.S. Schwartz 1985, p. 15). Utilizing a real options strategy allows businesses to capture the value of managerial flexibility in adapting decisions in response to unexpected market developments. When used as a conceptual tool, real options allow management to characterize and communicate the strategic value of an investment project (Bjerksund, P. and S. Ekern 1990). Traditional methods (e.g. net present value, discounted cash flow) fail to accurately capture the economic value of investments in an environment of widespread uncertainty and rapid change. Using real options theory, managers can more effectively target crucial opportunities to redeploy, delay, modify, or even abandon capital-intensive projects...
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...in-depth knowledge on how derivatives work and the impact of open interest on options. One of the most important concepts of the Derivatives Market is ‘Open Interest’. Open Interest (OI) is the total number of outstanding futures/options contracts that are not closed or delivered on a particular day. The project is mainly based on the study of the open interest and how it affects the equity market trends. OI stands to be an useful indicator of the market trends. Increasing OI indicates increased flow of money and thus strengthening of present market trend. Decreasing OI indicates reduced money flow and thus weakening the current trend. Sudden increase or decrease in the open interest position indicates higher market volatility in the near future. This project is a detailed study of OI positions of NIFTY options. The main focus is on forming NIFTY Options Strategy for investors who want to play in the NIFTY options with minimal risk. I will dedicate the initial phase of the project in knowing how the stock market functions and how derivatives play a very important role in minimizing risk. The project is divided into two phases. The first phase is mainly based on collection of two years options data from the NSE website. Then the data will be sorted-out based on OI positions. After that a strategy will be formulated where in net profit or loss obtained through this strategy will be calculated. As per the strategy,...
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...Introduction This report identified five dimensions of risks that would potentially influence the valuation of the early-stage biotechnology investment. This report then compared and contrasted the real and financial options that could be used in risk management strategies for Wahoo Genomics under certain assumptions. After analyzing the differences and similarities between the real and financial options, the report proposed to set up a coherent risks management strategy under prescribed assumptions. 1. Identification and Analysis of Risks 1.1 Technological Risk Generally, there are five dimensions of risks that companies face, including technological risk, economic risk, financial risk, performance risk and legal/regulatory risk (Triantis 2000). Among the five dimensions of risks, the technological risk affects the valuation of Wahoo Genomics’ early-stage biotechnology investment most. The technology risk arises often in the R&D stages, especially for companies in the pharmaceutical industry (Triantis 2000). All of the five stages of Wahoo Genomics’ R&D events involve a high level of technological risks. For instance, 95% of new animal drugs are abandoned during the phase of preclinical trial stage. Such high failure rate indicates a high level of R&D outcome risk, and such risk is compensated by potential high returns for investors. Specifically, a high volatility estimate reflects management’s expectations of the probability that the drug can successfully...
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...Traditional VS Islamic Financial Derivatives To: Prof. Naser Abu Mustafa By: Mwaffaq Al Jayousi & Mohammad Al Shdooh Abstract This study focuses the light on defining financial derivatives and briefly describe their different types (Options, Forwards, Futures, Swaps, etc.). At the same time it tries to find if these financial derivatives exists in the Arab world, how they are implemented, and if we have an Islamic alternatives for them. Introduction There is a big debate in the Arab world regarding the usage of financial derivatives, Wither they are legal according to Islam or not, and If they are illegal in Islam; are there any Islamic alternatives to them. First we have to ask our self: Is there any need to use derivatives? And why they recently became so popular in the western countries? The need for financial derivatives emerges when people realize that there must be a way to reduce the risk associated with the trading of different kinds of goods. Risks such as price fluctuations and the uncertainty about the future market conditions. And since there are some people who are willing to bear this risk instead of us, this market took off and recently because of the communications revolution it flourished. Then why these financial derivatives did not reach the Arab world? The answer is simply because they hugely rely on speculations and anticipation; which are considered illegal according to Islam. But someone can ask: if it is illegal in Islam, then how come we...
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...Demystifying T 20 The Milken Institute Review The Merriam-Webster dictionary defi nes a derivative in the fi eld of chemistry as “a substance that can be made from another substance.” Derivatives in fi nance work on the same principle. These fi nancial instruments promise payoffs that are derived from the value of something else, which is called the “underlying.” The underlying is often a fi nancial asset or rate, but it does not have to be. For example, derivatives exist with payments linked to the S&P 500 stock index, the temperature at Kennedy Airport, and the number of bankruptcies among a group of selected companies. Some estimates of the size of the market for derivatives are in excess of $270 trillion – more than 100 times larger than 30 years ago. When derivative contracts lead to large fi nancial losses, they can make headlines. In recent years, derivatives have been associated with a few truly notable events, including the collapses of Barings By René M. Stulz Financial Derivatives Third Quarter 2005 21 Bank (the Queen of England’s primary bank) and Long-Term Capital Management (a hedge fund whose partners included an economist with a Nobel Prize awarded for breakthrough research in pricing derivatives). Derivatives even had a role in the fall of Enron. Indeed, just two years ago, Warren Buffett concluded that “derivatives are fi nancial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.” michael...
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