Derivatives & Risk

The assignment is an individual written piece of work (as opposed to a piece of written group work) and you
are required to answer all three elements of the question.
The investment management department of your company has asked you to construct a speculative trading
strategy using options. You have been asked to invest £100,000 in options trading strategy for a non-bank,
non-insurance company’s shares for period between 26th February 2021 and 16th April 2021 (inclusive).
a. For the company whose shares are to be the underlying for your options, set up an options-based trading
strategy given your view of:
o the company
o current market sentiment regarding the segment in which it operates • likely market movements over the
period.
You must support your analysis using real market data (suitably evidenced) as well as suitable academic
literature covering analysis methods such as, for instance, economic, fundamental, technical etc.
You must include ‘screen shot’ evidence of the source of your options pricing in an appropriately referenced
appendix department.
(1000 Words: 35 Marks)
b. What is the annualised return that you are targeting based on your approach? Assess the risk that your
strategy will not produce the returns you have anticipated. You must also assess the risks that the use of an
options derivative instrument has introduced to the investment management department.
(500 Words: 10 Marks)
c. Report on the actual profit and loss of your strategy over the period and analyse its actual performance
relative to its forecast performance and analyse why your strategy achieved the results observed.
(500 Words: 15 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.

Sample Solution

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