N. Sheflin INVESTMENT GAME ROUND 5 DERIVATIVESTime to get risky (or not) with derivatives. Highly leveraged, used for hedging, arbitrage and speculation, best used by professionals. We’ll just look at simple futures and options, and mention the infamous CDOs and Credit Default Swaps. READ about derivatives at: http://www.investopedia.com/university/futures/(at least thru section 2) http://www.investopedia.com/university/options/and a bit on Black-Scholes http://www.pbs.org/wgbh/nova/stockmarket/formula.htmlIn VIRTUAL STOCK EXCHANGE–nothing to do – doesn’t support options or future trading. HOW IS YOUR PORTFOLIO DOING? Determine your paper gain/loss and explain the causes. Compare with the performance of the S&P 500. End is almost here. PROBLEMS?If VSE is behaving oddly (or even if not), it’s a good idea to keep a paper record of all transactions (purchases/sales). At worst, you can hand in a corrected version of your actions at the end of the game. APPLICATION Go to http://www.optionstoolbox.com/f/option_calculatorand price IBM Calls of October 2010 with a strike price of: 135 -enter IBM symbol in place of QQQ and then enter strike price of 135 and expiration date of Oct 10 from drop down menu •How much will the option cost you? •Why does the option have any value since IBM is selling for less than the strike price? •What is meant by the strike price? •Why do the other parameters (settings) matter? And how (try changing some and see what happens)? •
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