AF5002: Select One FTSE 100 or FTSE 250 Company 

AF5002: Select One FTSE 100 or FTSE 250 Company that You are Interested: Derivatives and Risk Assignment, NU, UK
Subject AF5002: Derivatives and Risk.

AF5002: Select One FTSE 100 or FTSE 250 Company

AF5002: Select One FTSE 100 or FTSE 250 Company that You are Interested: Derivatives and Risk Assignment, NU, UK
Subject AF5002: Derivatives and Risk

ASSIGNMENT PREPARATION TASK
This task is designed to help you develop your strategy for your assignment. It is the starting point for the research you will need which will inform your speculative view of the 35 days during which you will operate your option strategy.

The investment management department of your company has asked you to construct a speculative trading strategy using options. You have been asked to invest £100,000 in options trading strategy for a single FTSE 100 or FTSE 250 non-bank, non-insurance company’s shares for the 35 working day period between Monday 9th March 2020 and 28th April 2020 (inclusive).

a) For the company whose shares are to be the underlying for your options, set up an options-based trading strategy given your view of.
The company.
Current market sentiment regarding the segment in which it operates.
Likely market movements over the period.
You must support your analysis using real market data (suitably evidenced). As well as suitable academic literature covering analysis methods such as, for instance, economic, fundamental, technical, etc.

You must include ‘screenshot’ evidence of the source of your options pricing in an appropriately referenced appendix.

b) What is the annualized return that you are targeting based on your approach? Assess the risk that your strategy will not produce the returns you have anticipated. You must also assess the risks that the use of an options derivative instrument has introduced to the investment management department.

c) Report on the actual profit and loss of your strategy over the period and analyze its actual performance relative to its forecast performance and analyze why your strategy achieved the results observed.

TASK:

1. Select one FTSE 100 or FTSE 250 company that you are interested in. This must be a non-bank, non-insurance company.

2. Company-specific factors: Research the company’s fundamentals. That is, the companies past performance. For example, what was the company’s:

Sales Revenue for the past year.
Profit for the past year.
 Earnings per share (EPS) for the past year.
The share price for the past year.
Price to Earnings (PE) ratio for the past year.
Price to Book (PB) for the past year.
Debt to Equity ratio for the past year.
Latest news item?
Is the management stable?
Has the Company performed well?

What are the major company-specific events (e.g. Merger or Earnings report) coming up between now and 28th April that could cause a share price change?

How do you expect the company to perform in the next 2 months based on this information?

3. Industry-specific factor: Research the company’s industry fundamentals.

How has the industry performed over the past year?
How have the company’s industry competitors performed?
What are the factors which affect the industry?
Has the industry performed well?

Has your company performed well relative to its rivals?

What are the major industry-specific events (e.g. supply of raw materials, demand for goods produced) coming up between now and 28th April that could cause a share price change?

How do you expect the company to perform in the next 2 months based on this industry-specific information?

4. Country specific factor. Research the macroeconomic conditions of the country in which the company conducts most of its business. (I.e. where the company’s major income is from)

How has the Country performed over the past year?
What are the macroeconomic risks with this Country that could affect your company’s share price? E.g. Brexit, Interest Rates, Value of the GBP, etc.
What are the major Country-specific events. (E.g. Brexit deal, BoE rate decision) coming up between now and 28th April that could cause a share price change?

How do you expect the company to perform in the next 2 months based on this country-specific information?

How would wider market events affect the underlying price (check beta)?

5. Global factor: Research the global factors which affect share price.

Geopolitical issues.
Global business cycle.
Trade stability.
What are the major Global events (e.g. OPEC supply limits? US-China trade tensions, Global change in output (GDP) growth) coming up between now and 28th April that could cause a share price change?

How do you expect the company to perform in the next 2 months based on these global factors?

How would wider market events affect the underlying price (check beta)?

Following this research.

1. Are you bullish, bearish or neutral on the share price of your company?
2. Do you expect high price volatility or low-price volatility?

What would be the best speculative options trading strategy given your expectations?