Portfolio Risk Question

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Thread: Portfolio Risk Question

          
   
  1. #1
    Conceptual's Avatar
    Conceptual is offline Senior Member
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    Posts
    1,971

    Default Portfolio Risk Question

    You are managing a small portfolio for one of your top clients. Within his portfolio he is holding 3 positions within the same company. 100 shares of stock and 2 option contracts. The stock is currently trading at $155/share. His original price for the 100 shares was $142.

    - the first option contract is a $160 call with a breakeven price of $172 (expiration in 2 months)
    - the second option contract is a $210 call with a breakeven price of $215 (expiration in 7 months)


    In order to limit the client's risk you will have to propose a plan that both limits the client's potential loss while providing him with the maximum potential gain over the next 7 months.

    You may use covered calls, calls, puts and shorts in your strategy.

    Using the information below, how would you advise your client to proceed?

    -----

    Additional Information on Options Prices:

    2 Month Call Option Prices:
    150 Call - 14.12
    155 Call - 11.65
    160 Call - 9.45
    165 Call - 7.56
    170 Call - 6.03
    175 Call - 4.70


    2 Month Put Option Prices:
    155 Put - 11.44
    150 Put - 8.96
    145 Put - 6.85
    140 Put - 5.15
    135 Put - 3.75


    7 Month Call Option Prices:
    150 Call - 22.35
    155 Call - 20.10
    160 Call - 17.80
    165 Call - 15.73
    170 Call - 13.75
    175 Call - 12.30


    7 Month Put Option Prices:
    155 Put - 19.35
    150 Put - 16.74
    145 Put - 14.55
    140 Put - 12.80
    135 Put - 10.55

  2. #2
    Porsche996GT2's Avatar
    Porsche996GT2 is offline Senior Member
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    Default

    I wouldn't be able to make a decision without knowing what the company was.

  3. #3
    ChumpChange's Avatar
    ChumpChange is offline Senior Member
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    SoCal - 91711
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    Default

    Is this a school class question?
    Don't argue with idiots...they will just bring you down to their level then beat you with experience!

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