help please
REPLICATING TRADING STRATEGIES FINAL PROJECT FIN 463/565 TRADING STRATEGIES USING OPTIONS OVERVIEW & PURPOSE OF THIS PROJECT Trading with options is so much more profitable than just trading stocks, and it's a lot easier than most people think. This project lets you work on option trading using real financial data. Idea underlying this project is for you to replicate the spreads and combinations learned in class and speculate. At the end, we would want to create as much profit as possible (but it’s okay if we were not able to). LEARNING OBJECTIVE: critical thinking (data analysis, synthesize data, suggest a solution) HOW TO GET STARTED ‐ Find the right stock. You want to find a company that you are interested in and have a good insight on. Try to stick with industries you understand: if you enjoy shopping, look at retailers. If you love gaming, look at game software company, etc. This will make your research a lot easier and lead to a better stock pitch. Qualitatively, try to choose the best/worst company in that industry Quantitatively, use arbitrary parameters to filter out stocks. For example, you can select certain criteria (i.e. market cap, P/E, ROE, industry, etc.) and it spits out list of companies that meet the criteria. Free online stock screeners include Yahoo Finance, Google Finance, and Capital IQ. (e.g. Yahoo Finance screener: https://finance.yahoo.com/screener/new/ ) SOURCES OF INFORMATION ‐ General financial sites Yahoo Finance, Google Finance, MSN Money, Bloomberg terminals, WSJ.com WHAT TO DO : Replicate at least THREE of the following spreads/combinations: bull spread, bear spread, butterfly spread, straddle, strip and strap by using call and/or put options WHAT SHOULD BE INCLUDED IN YOUR PAPER: ‐ Screen capture the information as in the example below ‐ In a table, write down information of the options you have used (similar to the one given in the example below) ‐ Create a profit/payoff table and its graph for your spreads and combinations, respectively ‐ When expiration date reaches, find out whether your spreads and combinations created a profit or loss. How much was your total profit/loss? ‐ Suggest how you would have been made a (larger) profit with the respective spread/combinations : e.g. used different strike prices? Different option types? Different positions? FIN 463/565 EXAMPLE I am using Starbucks as my stock and am creating a butterfly spread Following screenshot is from Yahoo Finance website FIN 463/565 Here is the table of information option that I’m using to create my butterfly spread I looked up the options data on 10/9/2019 to create a butterfly spread. You should create a payoff/profit table & graph with possible stock prices at expiration before it reaches expiration, which in this example would be 10/11. option type put position Long traded date 2019/10/9
<=83><><=85><><=87 st="">87 long 1 put @ K=83 83-ST 0 0 0 short 2 put @ K=85 -2*(85-ST) -2*(85-ST) 0 0 long 1 put @ K=87 87-ST 87-ST 87-ST 0 payoff per share 0 -83+ST 87-ST 0 profit per share -0.8 -82.2+ST 86.2-ST -0.8 >i.e. adjusted payoff by option price per share ST<=83><><=85><><=87 st="">87 long 1 put @ K=83 100*(83‐ST) 0 0 0 short 2 put @ K=85 ‐200*(85‐ST) ‐200*(85‐ST) 0 0 long 1 put @ K=87 100*(87‐ST) 100*(87‐ST) 100*(87‐ST) 0 total payoff 0 ‐83+ST 87‐ST 0 total profit ‐80 (‐82.2+ST)*100 (86.2‐ST)*100 ‐80 ‐1 ‐0.5 0 0.5 1 1.5 2 2.5 80 81 82 83 84 85 86 87 88 89 90 Payoff/profit graph payoff profit FIN 463/565 On 10/11/2019, I found out that SBUX actual closing price was $86.36. Hence, my payoff was $0.64 per share and profit was ‐0.16 per share Therefore, I made a total loss of (reflecting total shares involved) was $16 with this butterfly spread. If I had used a smaller range of strike prices, I might have been able to produce profit instead of loss. Or if I had written (i.e. short) butterfly spread with the same option type, same strike price, and same expiration date, I would have created a $16 total profit instead of $16 loss. *I have shown only butterfly spread here as an example, but for your project you would need to replicate at least THREE of spreads and/or combinations. That is, choose THREE from bull spread, bear spread, butterfly spread, straddle, strip and strap and replicate them using real data. REPLICATING TRADING STRATEGIES FINAL PROJECT FIN 463/565 TRADING STRATEGIES USING OPTIONS OVERVIEW & PURPOSE OF THIS PROJECT Trading with options is so much more profitable than just trading stocks, and it's a lot easier than most people think. This project lets you work on option trading using real financial data. Idea underlying this project is for you to replicate the spreads and combinations learned in class and speculate. At the end, we would want to create as much profit as possible (but it’s okay if we were not able to). LEARNING OBJECTIVE: critical thinking (data analysis, synthesize data, suggest a solution) HOW TO GET STARTED ‐ Find the right stock. You want to find a company that you are interested in and have a good insight on. Try to stick with industries you understand: if you enjoy shopping, look at retailers. If you love gaming, look at game software company, etc. This will make your research a lot easier and lead to a better stock pitch. Qualitatively, try to choose the best/worst company in that industry Quantitatively, use arbitrary parameters to filter out stocks. For example, you can select certain criteria (i.e. market cap, P/E, ROE, industry, etc.) and it spits out list of companies that meet the criteria. Free online stock screeners include Yahoo Finance, Google Finance, and Capital IQ. (e.g. Yahoo Finance screener: https://finance.yahoo.com/screener/new/ ) SOURCES OF INFORMATION ‐ General financial sites Yahoo Finance, Google Finance, MSN Money, Bloomberg terminals, WSJ.com WHAT TO DO : Replicate at least THREE of the following spreads/combinations: bull spread, bear spread, butterfly spread, straddle, strip and strap by using call and/or put options WHAT SHOULD BE INCLUDED IN YOUR PAPER: ‐ Screen capture the information as in the example below ‐ In a table, write down information of the options you have used (similar to the one given in the example below) ‐ Create a profit/payoff table and its graph for your spreads and combinations, respectively ‐ When expiration date reaches, find out whether your spreads and combinations created a profit or loss. How much was your total profit/loss? ‐ Suggest how you would have been made a (larger) profit with the respective spread/combinations : e.g. used different strike prices? Different option types? Different positions? FIN 463/565 EXAMPLE I am using Starbucks as my stock and am creating a butterfly spread Following screenshot is from Yahoo Finance website FIN 463/565 Here is the table of information option that I’m using to create my butterfly spread I looked up the options data on 10/9/2019 to create a butterfly spread. You should create a payoff/profit table & graph with possible stock prices at expiration before it reaches expiration, which in this example would be 10/11. option type put position Long traded date 2019/10/9
<=83><><=85><><=87 st="">87 long 1 put @ K=83 83-ST 0 0 0 short 2 put @ K=85 -2*(85-ST) -2*(85-ST) 0 0 long 1 put @ K=87 87-ST 87-ST 87-ST 0 payoff per share 0 -83+ST 87-ST 0 profit per share -0.8 -82.2+ST 86.2-ST -0.8 >i.e. adjusted payoff by option price per share ST<=83><><=85><><=87 st="">87 long 1 put @ K=83 100*(83‐ST) 0 0 0 short 2 put @ K=85 ‐200*(85‐ST) ‐200*(85‐ST) 0 0 long 1 put @ K=87 100*(87‐ST) 100*(87‐ST) 100*(87‐ST) 0 total payoff 0 ‐83+ST 87‐ST 0 total profit ‐80 (‐82.2+ST)*100 (86.2‐ST)*100 ‐80 ‐1 ‐0.5 0 0.5 1 1.5 2 2.5 80 81 82 83 84 85 86 87 88 89 90 Payoff/profit graph payoff profit FIN 463/565 On 10/11/2019, I found out that SBUX actual closing price was $86.36. Hence, my payoff was $0.64 per share and profit was ‐0.16 per share Therefore, I made a total loss of (reflecting total shares involved) was $16 with this butterfly spread. If I had used a smaller range of strike prices, I might have been able to produce profit instead of loss. Or if I had written (i.e. short) butterfly spread with the same option type, same strike price, and same expiration date, I would have created a $16 total profit instead of $16 loss. *I have shown only butterfly spread here as an example, but for your project you would need to replicate at least THREE of spreads and/or combinations. That is, choose THREE from bull spread, bear spread, butterfly spread, straddle, strip and strap and replicate them using real data.