Trading for Options Under Different Strategies Essay

Contentss

Introduction:

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Schemes:

Strategy 1:

The ground why I choose this Trade:

What was worked?

What did non work?

Improvement in the trade:

Strategy 2: Trading an option and the implicit in plus:

The ground why I choose this Trade:

What was worked?

What did non work?

Improvement in the trade:

Strategy 3: Spreads:

The ground why I choose this Trade:

What was worked?

What did non work?

Improvement in the trade:

Decision:

Introduction:

Different types of schemes can be used for fudging including:

  • Principal protected notes
  • Trading an option and the implicit in plus
  • Spreads

Three selected companies are the Apple, Google and Intel Corporation. The above three schemes are discussed in item with regard to each company.

Schemes:

Strategy 1:

The first scheme that was applied through the synergistic brokers’ application was for the Apple Company.

The ground why I choose this Trade:

Apple Inc. ( Apple ) designs and manufactures the markets nomadic communicating and media devices, personal computing machines, and portable digital music participants, and a assortment of related package, services, peripherals, networking solutions, and third-party digital content and applications. Its stocks show a strong place in the market due to the diversified concern of the Apple Company. The Company ‘s merchandises and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional package applications, the Io and OS X runing systems, iCloud, and a assortment of accoutrement, service and support offerings. The Company besides delivers digital content and applications through the iTunes Store, App StoreSM, iBookstoreSM, and Mac App Store. The Company distributes its merchandises worldwide through its retail shops, online shops, and direct gross revenues force, every bit good as through third-party cellular web bearers, jobbers, retail merchants, and value-added resellers. In February 2012, the Company acquired app-search engine Chomp. Below is the item of the company’s stock from May 2013 to 1 May 2014. The shutting monetary value is $ 592.3 which is rather hazardous if we trade in this stock. The ground of taking to merchandise in Apple stock is due to the fact of increasing stock monetary value of Apple portions since May 2013 up to now.

What was worked?

  • On April 30, 2014, I bought a call option at 492.5 USD which was the portion monetary value and would run out at 2 May 2014.
  • On the same day of the month, I bought Apple stock of 100 portions at the monetary value of 592.34 USD.
  • On the same twenty-four hours I sold 100 portions of Apple at 596 USD each.
  • On May 1, 2014, I sold call option for 99.2 USD.
  • The overall net income realized is low because of that call option.

What did non work?

Alternatively of purchasing one call option, I bought 2 call contracts and the accomplished net incomes was low because of that excess call option. I should hold to sell 100 portions of Apple which would increase my net incomes alternatively of purchasing a call option and selling them together with the stock.

https://www.google.com/finance/getchart?q=AAPL&x=NASD&p=1Y&i=86400&ei=2NNgU4DiCaiAwAPF3AE

Improvement in the trade:

Alternatively of purchasing 100 portions of Apple stock, I would hold to purchase all 300 portions and sell them at a high monetary value which would finally bring forth a good net income on the other 200 portions. Alternatively I can utilize the combination of an option with the zero- voucher bonds which is called the principal protected note scheme. This scheme is good for conservative investors where the return is dependent on the public presentation of the stock. Here the Apple stock is executing good and this scheme can bring forth a good return for the investor. In this instance the value of the principal is protected i.e. ( 300*592.34 ) 177,702 USD would be protected and grown excessively because zero voucher bond wages principal every bit good as work stoppage monetary value of the call option. This would be the instance if the monetary value of the portfolio goes up. But if the portfolio goes down, the value of the option would hold no value but the original principal would be protected.

Strategy 2: Trading an option and the implicit in plus:

The 2nd scheme is merchandising an option with the stock and this is applied for the Google stock.

The ground why I choose this Trade:

The ground why I choose Google is because it is the biggest company in IT sector. Google is one of the richest company in footings of grosss and net net incomes. Its monetary value net incomes ratio is 27.6 and its net incomes per portion is 19.09. So it is a healthy company to put in its stock. Its estimated mark portion monetary value for one twelvemonth is 1324.63 USD. The chart above shows the last twenty-four hours activity and one twelvemonth activity of the stock which is demoing a shortage shutting. As can be seen from the chart the shutting monetary value of the twenty-four hours for Google stock is 526.66 USD which is besides a hazardous stock with more returns. Overall the Google stock has shown a moderate fluctuations in its monetary value over the twelvemonth.

What was worked?

  • On April 30, 2014, I bought 300 portions of Google at the monetary value of 536.15 USD.
  • I would necessitate to keep the stock of Google because the unfulfilled loss which would be realized if I would sell it is 2,228 USD.

What did non work?

Call option need non be implemented because of the lower monetary value of the Google stock. The portions would non be purchased at this clip because the Google portions are already traded in loss.

Improvement in the trade:

The figure of schemes can be used for this individual stock. We can utilize composing a covered call option where in which portfolios consists of a long places in stock and a short place in the European call option. There is a protection for investors from a long place stock on the final payments from a short call. The short call final payments becomes necessary when there is a crisp rise in the stock monetary values of the Google. If the option would hold been exercised, I would sell all the 300 portions of the Google stock at the work stoppage monetary value. Now I would hold to wait for the option to be exercised so that I can sell whole of my stock.

Strategy 3: Spreads:

The 3rd scheme of spread is applied to Intel Incorporation.

The ground why I choose this Trade:

The ground of taking the Intel Incorporation is that its portion monetary values have shown a nice tendency from old two months. In Jan 24, 2014, it was at 24.58 USD and today on 30 April, it closes on 26.69 USD. This portfolio of investing is non every bit hazardous as the old two portfolios. Previously Intel Corporation misjudges the nomadic moving ridge of tablets and smartphones but now it is retrieving good and its stock monetary values are the most consistent 1s in the stocks of all the trades in the U.S. They are now in the wearable engineering which triples from 10 billion USD to 30 billion USD in 2013. The stock of Intel is approximately 28 % in old twelvemonth and its grosss are at 53 billion USD. Due to all these facts I choose the Intel Incorporation as the 3rd company for stock trading.

What was worked?

  • I bought 100 portions of Intel Incorporation at call option of 26.74 USD
  • I sold 100 portions of Intel Incorporation at call option of 26.70 USD.
  • So the loss is 4 USD.

What did non work?

The call option would necessitate to be implemented in combination for Intel Incorporation stock so that Net income can be obtained from the combination of the stock of two call option.

http://www.stockchartpatterns.org/images/intel-channel-31-03-2012.png

Improvement in the trade:

Different options should be implemented for this Intel stock such as different options with different work stoppage monetary values should be used. This is called the butterfly spread. This spread can be created by purchasing a call option with comparatively low work stoppage monetary value and purchasing the call option with comparatively high work stoppage monetary values and selling the two call options with the work stoppage monetary value that is in between the two high and low monetary values.

Decision:

A figure of common trading schemes involve a individual option and the implicit in stock. For illustration, composing a covered call involves purchasing the stock and selling a call option on the stock ; a protective put involves purchasing a put option and purchasing the stock.

The former is similar to selling a put option ; the latter is similar to purchasing a call option.

Principal-protected notes can be created from a zero-coupon bond and a European call option. They are attractive to some investors because the issuer of the merchandise guarantees that the buyer will be have his or her chief back regardless of the public presentation of the plus underlying the option.

A figure of factor may impact the portion monetary values of the companies and corporations and one would necessitate to be updated with the alterations in the monetary values of stock. These alterations may happen due to the alteration in events such as for engineering companies alterations in engineerings would be kept in head before doing any trade in that company.

Largely nomadic companies and electronic companies are the most hazardous companies in footings of stock buying and merchandising and fiscal informations for these companies should be kept in head specially the fiscal statements.

There is besides a demand to acquire experience from the market by working in trading companies and securities firm houses. The starting motors should get down with the stocks of the company instead than puting in indices, barters and hereafters which are most hazardous and volatile in nature. The trade-off for covering with hereafters can’t be compared with the trade-off for the portions or stocks.