Question

1) design and development of an option trading strategy.

Pick a stock and design an appropriate option trading strategy given your view of the market. Provide the following analysis:

a) Fundamental and technical analysis with supporting evidence such as graphs.

b) Rational for option strategy, including time horizon, strike and moneyness.

c) risk-return analysis, i.e.: max reward, max risk, break-even price, payoff/P&L diagram and degree of bullishness?bearishness.

Answer 1

call option
Let the call option is taken at premium of 5 at price of 200
Exercise price	200.00
future selling price	inflow due to call option	permium	net outflow
150.00	we don’t exercise at situation	-5	-5
160.00	we don’t exercise at situation	-5	-5
170.00	we don’t exercise at situation	-5	-5
180.00	we don’t exercise at situation	-5	-5
190.00	we don’t exercise at situation	-5	-5
200.00	at this option we at neutral	-5	-5
210.00	10.00	-5	5.00
220.00	20.00	-5	15.00
230.00	30.00	-5	25.00
240.00	40.00	-5	35.00
question		Answer
Rational for option strategy		it is rational when future selling price is greater than 205
strike		when future selling price is more than 200
Risk		limited to premium
Return		unlimited
break even price		205
call option holder		always bullish