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Ofrm Assignment

In: Business and Management

Submitted By gautham8219
Words 1609
Pages 7
PART 1
Introduction
Objective – The objective is to protect the capital value of the stock positions, while having a short term cautiously bullish view on the stock but also concerned about the fall in the price. Hence a combination of collar strategy and protective put was adopted, as they are more appropriate for a short term period. Only one stock was shorted. Also we seek a target return of 10% annualized.
Benefits & Risks - Our profit potential is not limited, so if the share price rise, we still benefit from increase in value of share. The strategy being effective for a short period.
The options chosen were of shorter time period as the time decay works in our favour which have been written, time erodes faster when option approaches expiry. Also out of the money options were chosen as there was an expectation that calls would not be realised as the stock price would reasonably grow. This led to increase participation in share price rise while the trade-off is on premium received which is lower for out of money options.
A detailed explanation has been provided in APPENDIX A.
Portfolio Construction
A portfolio of 6 stocks from ASX200 and their related options was constructed on 03rd Sep’15 to be held for 2 weeks and then squared off at the end of the period.
The top performing stocks from well diversified sectors were identified based on fundamental and market analysis. 1) Energy sector - AGL Energy Limited (AGL) 2) Healthcare sector -Sonic Healthcare Limited (SHL) 3) Information Technology sector - Computershare Limited (CPU) 4) Financial Services -Macquarie Group Limited – (MQG) 5) Telecommunication sector -Telstra Corp Limited (TLS) 6) Consumer staple - Coca-Cola Amatil Limited (CCL)

Market views on the stocks -

1. MQG- Highly diversified financial group with overseas operations. As per 23rd July report, minimal...

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