Futures, Options, Swaps

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Category: Business and Industry

Date Submitted: 08/23/2011 06:56 PM

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The initial three strategies that I performed included a straddle, butterfly spread, and a bear spread. The stocks that I choose were large cap stocks and I was relatively familiar with some of their products and operations.

Starting off, I longed a straddle on Microsoft by buying a put and a call with a strike price of 26 and with an expiration of December 10. Microsoft recently launched a new video game product called the “Kinect” which is an addition to the Xbox gaming console which is a big ticket item for Microsoft. Due to the release of the new product I felt the stock would have volatility but was cautious because I was not sure how the public would react to the new product. So, I felt that a straddle would be a good play for MSFT. My next strategy was a butterfly spread on Apple. I longed two calls with strike prices of 310 and 330. Also, I shorted two calls with a strike price of 320 and an expiration of December 10. I have always been fascinated with Apple and their innovative products so I decided to use a butterfly on the stock because I felt that large movement in Apple’s stock was unlikely and the price should stay around 320. I felt that this was a good strategy because it is a low risk play that is protected by a small loss if there is a significant price move in either direction. My last initial strategy was a bear spread on Merck & Co. inc.(MRK). I bought two calls with a strike price of 33 and 38 with an expiration of December 10. Merck & Co. is a large cap company who focuses on global health care and discovers, develops, manufactures and markets medicines, vaccines, biological therapies and consumer and animal products. Going into the assignment I did not know anything about the company but I read an article on yahoo finance in which they projected the stock to take a dive because of disappointing third quarter results and reduced sales of a drug that they have on the market.

I monitored my portfolio about once every two days. I...