Abstract

The case study describes how the board of Newway Bright Stock Fund, a first generation fund management firm, decided to use Options investment strategies for hedging as well as for speculation purposes, in order to achieve the next level of growth. It provides sufficient information to construct, distinguish, and analyze the payoff profiles of various options strategies — specifically the Box, The Butterfly, and Condor strategies — both from the Long and Short point of view.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Construct Box, Butterfly, and Condor Options strategies with the help of NYSE Options data
• Calculate the payoff profiles of these Options strategies both from the Long and Short points of view using Options data of Microsoft and Facebook
• Analyze the risk and reward in using these Options strategies
• This case study is meant for graduate/post-graduate level students as a part of their Financial Derivatives, Financial Risk Management courses. It seeks to make students aware of Options and the various Options strategies. The case study can also be used

Keywords

Long Straddle, Short Straddle, Long Strangle, Short Strangle, Long Strip, Short Strip, Long Strap, Short Strap, Microsoft, Facebook, In-The-Money, Out-of-The-Money, Strike Prices, Options strategies, Options