a) Jeff is not sure which direction the stock will move, so it is good for him to embark on a long
strangle strategy. With this strategy, he will buy call and put options for Microsoft stock at outof- the-money in the same time, and same expiration date.
1. Discuss the role of derivatives during the financial crisis in 2008 and 2009. Share
your perspective on the regulation of derivatives in the financial markets.
The main reason caused the financial crisis in 2008 and 2009 is the house bubble or subprime
1.There are two common methods in valuating options: the two state model and the BlackScholes model. They are quite the same in the way to calculate. However, for the two state
model, we can expand price to two possible prices (up-price and down-price) at
a) As John is concern about the weaken market, and he is not confident with his feeling, so
buying a put option can protect John from losses if the stock price does go down. John will have
to pay $1650 to get the put options (300 shares*$5.5). Limitati
Option analysis and financial derivatives
Potential Gains and Losses
Along with rapidly growing in financial market, it is substantially increasing in volatility.
As a result, financial derivatives have been used widely by corporations, commercial banks,
2.Describe the options trading strategies and in what types of investment environments
these strategies could be employed. Discuss the potential risks and gains of each strategy.
Options are financial derivative with no obligation. They are often used for
Discuss the call put options in the context of creating an insurance policy. Go into the
market and discuss specific examples of insurance policies that can be created in the
context of current market conditions.
The call put options can be used as insura
2. Options are good tools for investors to enhance their returns on their portfolios. Option gives
holder the right but obligation to exercise it. This is a unique advantage of option over the other
derivatives. Hence in any situation, profit from option
. Using the option pricing models, go into the marketplace and select an option. Using the
option pricing models, value the option. Then discuss if the market value of the option is
reflective of where the option is currently trading. Include a discussion
1. There are two common types of option valuation models: the Black-Scholes model, and the
binomial model. Basically they are based on the same theoretical foundations and assumptions.
However, they have some important differences. First of all, the Black
1. Authorized and available shares. Aspin Corporation`s charter authorizes issuance of
2,000,000 shares of common stock. Currently, 1,400,000 shares are outstanding and 100,000 shares are
being held as treasury stock. The firm wishes to raise $48,000,000