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.
1. 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 single FTSE 100 or FTSE 250 non-bank, non-insurance company’s shares for the 35 working day period between Monday 19th February 2018 and 13th April 2018 (inclusive). The department has
stipulated that your choice of strategies as one of either a:
1. Protective Put, or 2. Covered Call
a) For the company whose shares are to be the underlying for your options, set up an options-based trading strategy (from the choices 1 or 2 above) given your view of:
» the company,
» current market sentiment regarding the segment in which it operates, and
» likely market movements over the period.
You must support your analysis using real market data (suitably evidenced) as well as suitable technical etc.
You must include ‘screen shot’ evidence of the source of your options pricing in a properly referenced appendix.
Describe the reasons why your chosen strategy is appropriate for the company you have identified and researched. Present the expected profit/loss of your trading strategy using both a table and a graph.
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.
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.
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.
