Keller Fund

I. INTRODUCTION

“To provide long-term capital appreciation” is the investment objective of The Keller All-Star Growth Fund. To achieve this objective, The Keller Fund strives to explore new strategies that could help improve its fund’s performance.

At a recent board meeting, a proposal to initiate option trading strategies was being considered. The proponent suggested that intelligent trading in options on a regular basis might be able to improve the fund’s returns, while possibly lowering its volatility.

The fund’s charter permitted different investment strategies which consists of buying the stock of a listed company, buying a call option on a listed stock, writing a call option on a listed stock, buying a put option on a listed stock, selling a put option on a listed stock and various combinations of the these strategies. The company is considering purchasing the stocks of AT&T Corporation and Lotus Development Corporation.

The question now is what would be the best investment strategy that The Keller Fund could use to enhance its fund’s performance.

II. EXECUTIVE SUMMARY

The focus of the study is about the best investment strategy that The Keller Fund could use to enhance its fund’s performance.

The Keller All-Star growth fund started operations in 1985 and since then, now has approximately $300million invested primarily in publicly traded common stocks. They sought to achieve their investment objective by investing in a diversified portfolio of common stocks with above average potential for growth in revenues and earnings.

The Keller Fund is considering the stocks of AT&T Corporation and Lotus Development Corporation for possible purchase in the near future. Information about these stocks are then used to evaluate the different investment strategies that the company is choosing from.

This study used possible profit and loss computations and sensitivity analysis to evaluate each investment strategy laid upon the...