So far, things have gone well with Dr. Bueller. Before you wrap up your meetings and he begins investing, you decide to spend a little time sharing information with him about using derivatives to manage risk and enhance returns in his stock portfolio.
You decide the best way to illustrate this is via a call option that he can use on a stock that might have some upside potential. If the stock does not reach the potential, the option minimizes the risk. The stock is AXQ Enterprises—a high-tech firm that did well during the Internet boom but declined when the boom turned into a bust.
If the company’s new portal software is adopted by a large number of consumers over the next few months, you believe the stock can go much higher. The 6-month options are priced at US$1, the strike price is US$22, and the current price for AXQ stock is US$20.
Put together a report of 4–6 pages (body of report) with a table or graph included that illustrates what advice you would give Dr. Bueller on the options if the price of the stock So far, things have gone well with Dr. Bueller. Before you wrap up your meetings and he begins investing, you decide to spend a little time sharing information with him about using derivatives to manage risk and enhance returns in his stock portfolio.
You decide the best way to illustrate this is via a call option that he can use on a stock that might have some upside potential. If the stock does not reach the potential, the option minimizes the risk. The stock is AXQ Enterprises—a high-tech firm that did well during the Internet boom but declined when the boom turned into a bust.
If the company’s new portal software is adopted by a large number of consumers over the next few months, you believe the stock can go much higher. The 6-month options are priced at US$1, the strike price is US$22, and the current price for AXQ stock is US$20.
Put together a report of 4–6 pages (body of report) with a table or graph included that illustrates what advice you would give Dr. Bueller on the options if the price of the stock was US$18, US$21, US$24, or US$28 at the end of 6 months.
Assignment Guidelines
Your submitted assignment must include the following:
Grading
You will be graded on the accuracy of your stock option table/graph, your recommendations as to whether or not Dr. Bueller should exercise the stock option, and the quality of the supporting rationale underlying your recommendations. You will also be graded on your demonstrated understanding of stock options and portfolio management.
Please submit your assignment.
Your submitted assignment must include the following:
Grading
You will be graded on the accuracy of your stock option table/graph, your recommendations as to whether or not Dr. Bueller should exercise the stock option, and the quality of the supporting rationale underlying your recommendations. You will also be graded on your demonstrated understanding of stock options and portfolio management.
Please submit your assignment.
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