Illustrates the advantages of selling calls versus the strategy of early exercise, sell and "diversify"
John Olagues
www.truthinoptions.net
olagues@gmail.com
504-875-4825
http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470471921.html
Apple Employee Stock Options strategies comparedTruth in Options
The document compares the strategies of selling calls against employee stock options (ESOs) from Apple versus prematurely exercising the ESOs, selling the stock, and diversifying into the S&P 500 index. It analyzes how each strategy would perform under different stock price scenarios for Apple and the S&P 500 from June 2012 to August 2012. It concludes that selling calls against the ESOs consistently outperforms the premature exercise and diversification strategy, with less overall risk.
Gives a comparison of hedging using exchange traded options with premature exercises
John Olagues
www.truthinoptions.net
olagues@gmail.com
504-875-4825
http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470471921.html
Assignment 1 it is worth 10 percent on overall grade please submit the assignment on time if assignment late submit 3 percent will deducted from the assignment grade.
1. Below is the date on Netherland’s GDP extracted from Eurostat, the European Union’s statistical office, for the period 2007 – 2019, Real GDP is calculated with a fixed Wight method and 2007 as the base year. Fill the table by calculating
% Change
Nominal GDP in Price
Real GDP GDP deflator Level
2005 2.297,82 2.297,82
2006 2.383,07 2.390,20
2007 2.460,99 2.510,11
2008 2.486,88 2.558,02
2009 2.346,67 2.456.66
2010 2.442,67 2.576,22
2011 2.530,36 2.699,10
2012 2.539,89 2.749,90
2013 2.542,58 2.809,48
2014 2.583,37 2.903,79
A- The GDP deflator for each year.
B - The change in price level, in percentage terms.
2. Define the following:
A. Sticky Prices:
B. Business Cycle:
C. GDP:
D. GNP:
E. Durable Goods:
F. The labor force:
G. The consumer price index:
H. The unemployment rate:
I. Producer price indexes:
J. Output growth:
1-4. Dana makescustom bird houses in her garage and she buys all her supplies from a local lumber yard. Last year she purchased $3.500 worth of supplies and produced 250 bird houses. She sold all 250 bird houses to local craft store for $25 each. The craft store sold all the bird houses to the customers for $55 each. For the total bird house production. Calculate the value added of Dana and the craft store?
5. porta Island is small nation with a simple economy that produces only six goods: Sugar cane, Yo – yos, Run, Peanuts, Harmonicas and Peanut butter. Assume that one quarter of all the sugar can is used to produce run and one half of all peanuts are to produce Peanut butter.
A – Use the production and price information in the table to calculate nominal GDP for 2019?
b- Use the production and price information in the table to calculate real GDP from 2017, 2018, and 2019 using 2019 as base year. What is the growth rate of real GDP from 2017 to 2018 and from 2018 to 2019?
C - Use the production and price information in the table to calculate GDP for 2017, 2018, and 2019 using 2018 as the base year. What is the growth rate of GDP from 2017 to 2018 and 2018 to 2019?
20172018 2019
Product Quantity Price Quantity Price Quantity Price
Sugar cane 240 $ 0.80 240 $ 1.00 300 ...
The document is a stock market game report by Jacobo Kilgore. It discusses Kilgore's strategies and performance in the stock market game over several months. Kilgore started with $100,000 and finished with $93,847.39, for a loss of -$6152.61. Kilgore discusses three main strategies used - day trading stocks held less than 2 days, buying stocks priced under $45, and following his intuition on companies. He analyzes specific trades and what he learned from successes and mistakes to improve his strategies over time.
Reducing risks of holding Employee Stock OptionsTruth in Options
Reducing the risks of holding Employee Stock Options can only be done efficiently by selling calls and buying puts.
Most advisers claim otherwise. They do so because their employers and the companies benefit from doing so, at the expense of their clients. Its a violation of their fiduciary duties to advise early exercises, sell and diversify.
This document outlines various derivative trading positions undertaken by the author between June and July 2016. Positions included short sales, protective puts, covered calls, bull spreads, bear spreads, straddles, futures contracts on currencies and commodities, and ETFs. The author's gold, silver and currency futures exceeded expectations due to hedging benefits. A bull spread on Southwest Airlines underperformed as oil prices recovered. Overall, the author found the experience educational for understanding hedging techniques and profiting during economic uncertainty. Lessons learned will influence the author's personal investing.
This document provides information about an upcoming event hosted by Vancouver Disciplined Trading Hub (VDTH). It includes details about meetup locations and times in Vancouver and Surrey. The presentation will cover who the presenters are, what disciplined trading means, inspiration sources, non-directional and directional trade strategies, and content for the upcoming week. Disclaimers are provided that the presenters are not registered advisors and are not providing personalized recommendations.
Apple Employee Stock Options strategies comparedTruth in Options
The document compares the strategies of selling calls against employee stock options (ESOs) from Apple versus prematurely exercising the ESOs, selling the stock, and diversifying into the S&P 500 index. It analyzes how each strategy would perform under different stock price scenarios for Apple and the S&P 500 from June 2012 to August 2012. It concludes that selling calls against the ESOs consistently outperforms the premature exercise and diversification strategy, with less overall risk.
Gives a comparison of hedging using exchange traded options with premature exercises
John Olagues
www.truthinoptions.net
olagues@gmail.com
504-875-4825
http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470471921.html
Assignment 1 it is worth 10 percent on overall grade please submit the assignment on time if assignment late submit 3 percent will deducted from the assignment grade.
1. Below is the date on Netherland’s GDP extracted from Eurostat, the European Union’s statistical office, for the period 2007 – 2019, Real GDP is calculated with a fixed Wight method and 2007 as the base year. Fill the table by calculating
% Change
Nominal GDP in Price
Real GDP GDP deflator Level
2005 2.297,82 2.297,82
2006 2.383,07 2.390,20
2007 2.460,99 2.510,11
2008 2.486,88 2.558,02
2009 2.346,67 2.456.66
2010 2.442,67 2.576,22
2011 2.530,36 2.699,10
2012 2.539,89 2.749,90
2013 2.542,58 2.809,48
2014 2.583,37 2.903,79
A- The GDP deflator for each year.
B - The change in price level, in percentage terms.
2. Define the following:
A. Sticky Prices:
B. Business Cycle:
C. GDP:
D. GNP:
E. Durable Goods:
F. The labor force:
G. The consumer price index:
H. The unemployment rate:
I. Producer price indexes:
J. Output growth:
1-4. Dana makescustom bird houses in her garage and she buys all her supplies from a local lumber yard. Last year she purchased $3.500 worth of supplies and produced 250 bird houses. She sold all 250 bird houses to local craft store for $25 each. The craft store sold all the bird houses to the customers for $55 each. For the total bird house production. Calculate the value added of Dana and the craft store?
5. porta Island is small nation with a simple economy that produces only six goods: Sugar cane, Yo – yos, Run, Peanuts, Harmonicas and Peanut butter. Assume that one quarter of all the sugar can is used to produce run and one half of all peanuts are to produce Peanut butter.
A – Use the production and price information in the table to calculate nominal GDP for 2019?
b- Use the production and price information in the table to calculate real GDP from 2017, 2018, and 2019 using 2019 as base year. What is the growth rate of real GDP from 2017 to 2018 and from 2018 to 2019?
C - Use the production and price information in the table to calculate GDP for 2017, 2018, and 2019 using 2018 as the base year. What is the growth rate of GDP from 2017 to 2018 and 2018 to 2019?
20172018 2019
Product Quantity Price Quantity Price Quantity Price
Sugar cane 240 $ 0.80 240 $ 1.00 300 ...
The document is a stock market game report by Jacobo Kilgore. It discusses Kilgore's strategies and performance in the stock market game over several months. Kilgore started with $100,000 and finished with $93,847.39, for a loss of -$6152.61. Kilgore discusses three main strategies used - day trading stocks held less than 2 days, buying stocks priced under $45, and following his intuition on companies. He analyzes specific trades and what he learned from successes and mistakes to improve his strategies over time.
Reducing risks of holding Employee Stock OptionsTruth in Options
Reducing the risks of holding Employee Stock Options can only be done efficiently by selling calls and buying puts.
Most advisers claim otherwise. They do so because their employers and the companies benefit from doing so, at the expense of their clients. Its a violation of their fiduciary duties to advise early exercises, sell and diversify.
This document outlines various derivative trading positions undertaken by the author between June and July 2016. Positions included short sales, protective puts, covered calls, bull spreads, bear spreads, straddles, futures contracts on currencies and commodities, and ETFs. The author's gold, silver and currency futures exceeded expectations due to hedging benefits. A bull spread on Southwest Airlines underperformed as oil prices recovered. Overall, the author found the experience educational for understanding hedging techniques and profiting during economic uncertainty. Lessons learned will influence the author's personal investing.
This document provides information about an upcoming event hosted by Vancouver Disciplined Trading Hub (VDTH). It includes details about meetup locations and times in Vancouver and Surrey. The presentation will cover who the presenters are, what disciplined trading means, inspiration sources, non-directional and directional trade strategies, and content for the upcoming week. Disclaimers are provided that the presenters are not registered advisors and are not providing personalized recommendations.
This document discusses foreign exchange concepts including forward premiums and discounts, forward contract settlement dates, and transaction exchange risk. It provides examples and explanations of how to calculate the annualized forward premium or discount given spot and forward rates. It also describes a foreign exchange swap transaction and the relationship between interest rates in the two currencies. Finally, it analyzes the transaction exchange risk faced by a company receiving payment in foreign currency in the future if it does not hedge, including the expected revenue and range capturing 95.45% of possibilities.
The document provides ground rules for an upcoming session, noting that cell phones should be silenced, avoid in/out movement during the session, and save questions until the end. The duration is estimated to be 50-90 minutes, and to contact the organizer if there is not enough time.
1) The document describes a compensation plan for a company called Easy Pha-Max that sells health products through a network of franchise partners.
2) Partners can earn money through retail sales commissions, enrollment bonuses for recruiting new partners, and a monthly residual bonus called the Strategic Loyalty Incentive based on global sales volumes.
3) The compensation plan is designed to reward partners for building a deep organization by recruiting new partners who also recruit others, in order to achieve the highest monthly bonuses.
The document describes two option strategies implemented on SBI stock - a bull call spread before the company's earnings announcement and writing straddles after. For the bull call spread, the stock was expected to rise with increased volatility before results. This strategy realized a profit. For writing straddles after results, the stock was expected to trade in a range with decreasing volatility. Utilizing the time decay over a long weekend, this strategy also proved profitable. The document analyzes the relevant market data and outlines the risk-reward profiles of both strategies.
Chapter 6Intervention with Euros Assume that Belgium, one of the.docxchristinemaritza
Chapter 6
Intervention with Euros Assume that Belgium, one of the European countries that uses the euro as its currency, would prefer that its currency depreciate against the U.S. Dollar. Can it apply central bank intervention to achieve this objective? Explain.
1. Indirect Intervention. Why would the Fed’s indirect intervention have a stronger impact on some currencies than others? Why would a central bank’s Indirect intervention have a stronger impact than its direct intervention?
2. Intervention Effects on Corporate Performance
Assume you have a subsidiary in Australia. The subsidiary sells mobile homes to local consumers in Australia, who buy the homes using mostly borrowed funds from local banks. Your subsidiary purchases all of this materials from Hong Kong. The Hong Kong dollar is tied to the U.S. dollar. Your subsidiary borrowed funds from the U.S. parent, and must pay the parent $100,000 in interest each month. Australia has just raised its interest rate in order to boost the value of its currency (Australian dollar, A$). The Australian dollar appreciates against the U. S dollar as a result. Explain whether these actions would increase, reduce, or have no effect on:
a) The volume of your subsidiary's sales in Australia
b) The cost of your subsidiary of purchasing materials (measured in A$)
c) The cost to your subsidiary of making the interest payments to the U.S. parent (measured in A$). Briefly explain each answer
4. Intervention Effects on Corporate Performance
Assume you have a subsidiary in Australia. The subsidiary sells mobile homes to local consumers in Australia, who buy the homes using mostly borrowed funds from local banks. Your subsidiary purchases all of this materials from Hong Kong. The Hong Kong dollar is tied to the U.S. dollar. Your subsidiary borrowed funds from the U.S. parent, and must pay the parent $100,000 in interest each month. Australia has just raised its interest rate in order to boost the value of its currency (Australian dollar, A$). The Australian dollar appreciates against the U. S dollar as a result. Explain whether these actions would increase, reduce, or have no effect on:
a) The volume of your subsidiary's sales in Australia
b) The cost of your subsidiary of purchasing materials (measured in A$)
c) The cost to your subsidiary of making the interest payments to the U.S. parent (measured in A$). Briefly explain each answer
Chapter 7:
Assume the following information:
Beal Bank Yardley Bank
Bid price of New Zealand dollar $.401 $.398
Ask price of New Zealand dollar $.404 $.400
Given this information, is locational arbitrage possible? If so, explain the steps involved in locational arbitrage, and compute the profit from this arbitrage if you had $1,000,000 to use. What market forces would occur to eliminate any further possibilities of locational arbitrage?
ANSWER: Yes, One could purchase New Zealand dollars at Yardley Bank for $.40 and sell them to Beal Bank for $.401. With $1 million ...
Bonus shares are additional free shares given to existing shareholders based on the number of shares owned, representing a company's accumulated retained earnings. Companies issue bonus shares to increase liquidity and shareholder participation when earnings per share rise substantially. For example, a company with Rs. 10,000 profit and 100 shares has an earnings per share of Rs. 100. To lower the price per share for retail investors and improve liquidity, the company may declare a 1:4 bonus issue, increasing shares to 500. This lowers the price per share to Rs. 20 while maintaining the same total market value. Bonus shares are accounted for by transferring reserves to share capital.
This document provides information about a presentation on disciplined trading given by Vancouver Disciplined Trading Hub (VDTH). The presentation introduces VDTH, discusses what disciplined trading means, and covers non-directional and directional trades. It also lists upcoming content for traders and holds a round table discussion. The document notes that VDTH is for educational purposes only and does not provide individualized recommendations or advice.
This document provides information about a Vancouver Disciplined Trading Hub (VDTH) meetup event. It states that the meetup will take place every Sunday at 6:00 PM at the Cedar Cottage Pub in Vancouver and every Friday at SFU Surrey. The meetup is hosted by Karim Adatia, Maki Yanagi and other financial educators. The meetup will cover topics related to disciplined trading such as predefining risk, cutting losses, and using systematic money management plans. It also advertises workshops and training programs on non-directional and directional trades.
This document provides information about a Vancouver Disciplined Trading Hub (VDTH) meetup event. It states that the meetup will take place every Sunday at 6:00 PM at the Cedar Cottage Pub in Vancouver and every Friday at SFU Surrey. The meetup is hosted by Karim Adatia, Maki Yanagi and other financial educators. The meetup will cover topics like what disciplined trading is, inspiration from traders like Mark Douglas and Norman Hallet, non-directional and directional trades, and include a practice trade and round table discussion.
Case Problem 15.2 Jim and Polly Pernelli Try Hedging with Stock In.docxcowinhelen
Case Problem 15.2 Jim and Polly Pernelli Try Hedging with Stock Index Futures
Jim Pernelli and his wife, Polly, live in Augusta, Georgia. Like many young couples, the Pernellis are a two-income family. Jim and Polly are both college graduates and hold high-paying jobs. Jim has been an avid investor in the stock market for a number of years and over time has built up a portfolio that is currently worth nearly $375,000. The Pernellis’ portfolio is well diversified, although it is heavily weighted in high-quality, mid-cap growth stocks. The Pernellis reinvest all dividends and regularly add investment capital to their portfolio. Up to now, they have avoided short selling and do only a modest amount of margin trading.
Their portfolio has undergone a substantial amount of capital appreciation in the last 18 months or so, and Jim is eager to protect the profit they have earned. And that’s the problem: Jim feels the market has pretty much run its course and is about to enter a period of decline. He has studied the market and economic news very carefully and does not believe the retreat will cover an especially long period of time. He feels fairly certain, however, that most, if not all, of the stocks in his portfolio will be adversely affected by these market conditions—although some will drop more in price than others.
Jim has been following stock index futures for some time and believes he knows the ins and outs of these securities pretty well. After careful deliberation, Jim and Polly decide to use stock index futures—in particular, the S&P MidCap 400 futures contract—as a way to protect (hedge) their portfolio of common stocks.Questions
a. Explain why the Pernellis would want to use stock index futures to hedge their stock portfolio and how they would go about setting up such a hedge. Be specific.
1. What alternatives do Jim and Polly have to protect the capital value of their portfolio?
2. What are the benefits and risks of using stock index futures to hedge?
b. Assume that S&P MidCap 400 futures contracts are priced at $500 × the index and are currently being quoted at 769.40. How many contracts would the Pernellis have to buy (or sell) to set up the hedge?
1. Say the value of the Pernelli portfolio dropped 12% over the course of the market retreat. To what price must the stock index futures contract move in order to cover that loss?
2. Given that a $16,875 margin deposit is required to buy or sell a single S&P 400 futures contract, what would be the Pernellis’ return on invested capital if the price of the futures contract changed by the amount computed in question b1?
c. Assume that the value of the Pernelli portfolio declined by $52,000 while the price of an S&P 400 futures contract moved from 769.40 to 691.40. (Assume that Jim and Polly short sold one futures contract to set up the hedge.)
1. Add the profit from the hedge transaction to the new (depreciated) value of the stock portfolio. How does this amount compare to the $375,000 portfol.
FIN 402 Week 3 Case ProblemsCase Problem 6.1 Sara Decides to Tak.docxnealwaters20034
FIN 402 Week 3 Case Problems
Case Problem 6.1 Sara Decides to Take the Plunge
1. LG 1
2. LG 6
Sara Thomas is a child psychologist who has built a thriving practice in her hometown of Boise, Idaho. Over the past several years she has been able to accumulate a substantial sum of money. She has worked long and hard to be successful, but she never imagined anything like this. Even so, success has not spoiled Sara. Still single, she keeps to her old circle of friends. One of her closest friends is Terry Jenkins, who happens to be a stockbroker and who acts as Sara’s financial advisor.
Not long ago Sara attended a seminar on investing in the stock market, and since then she’s been doing some reading about the market. She has concluded that keeping all of her money in low-yielding savings accounts doesn’t make sense. As a result, Sara has decided to move part of her money to stocks. One evening, Sara told Terry about her decision and explained that she had found several stocks that she thought looked “sort of interesting.” She described them as follows:
· North Atlantic Swim Suit Company. This highly speculative stock pays no dividends. Although the earnings of NASS have been a bit erratic, Sara feels that its growth prospects have never been brighter—“what with more people than ever going to the beaches the way they are these days,” she says.
· Town and Country Computer. This is a long-established computer firm that pays a modest dividend yield (of about 1.50%). It is considered a quality growth stock. From one of the stock reports she read, Sara understands that T&C offers excellent long-term growth and capital gains potential.
· Southeastern Public Utility Company. This income stock pays a dividend yield of around 5%. Although it’s a solid company, it has limited growth prospects because of its location.
· International Gold Mines, Inc. This stock has performed quite well in the past, especially when inflation has become a problem. Sara feels that if it can do so well in inflationary times, it will do even better in a strong economy. Unfortunately, the stock has experienced wide price swings in the past. It pays almost no dividends.
Questions
a. What do you think of the idea of Sara keeping “substantial sums” of money in savings accounts? Would common stocks make better investments for her than savings accounts? Explain.
Answer: It is not a smart idea for Sara to retain substantial sums of money in her savings account for the reason that she could potentially make more money by investing in stocks. For example, the average rate for a savings account is 0.06%, and if you invest in stock, you can make anywhere from 0-15% depending on the amount of risk you is willing to take.
b. What is your opinion of the four stocks Sara has described? Do you think they are suitable for her investment needs? Explain.
Answer: Three out of the four stocks are ok investments to make since there is so little information provided. I do not think the NASS is a good i.
This document provides information about an upcoming event hosted by Vancouver Disciplined Trading Hub (VDTH). The event will take place on Sundays at 6:00 PM at the Cedar Cottage Pub in Vancouver and on Fridays at SFU Surrey. It will feature presentations by financial educators on the topics of disciplined trading, inspiration from trading experts, and non-directional and directional trades. The presentations are intended for educational purposes only and do not constitute investment advice.
This document provides information about an upcoming event hosted by Vancouver Disciplined Trading Hub (VDTH). It introduces the presenters and their backgrounds. The presentation will cover topics like what disciplined trading is, inspiration from other traders, non-directional and directional trades, and content for the week. It emphasizes the importance of predefining risk, cutting losses, and using a systematic money management plan in disciplined trading. The disclaimer notes that VDTH is not providing individual recommendations or advice.
Hedging transaction exposure using forward contracts versus money market instruments can produce the same results under certain conditions. Forward contracts allow selling or buying foreign currency receivables or payables at a set future rate. Money market hedges involve borrowing or lending the present value of foreign currency amounts to create offsetting positions. If interest rate parity holds, the two methods are equivalent. Options contracts provide advantages over forward contracts by allowing the hedger to decide whether to exercise based on the realized exchange rate, eliminating downside risk while retaining upside potential.
This document is a slideshow presentation on options trading. It introduces Prosperis Passive Income Strategies (PPIS) and its founder Karim Adatia. The presentation covers what options are, demonstrates a sample trade using the iron condor strategy, and reviews PPIS's track record of profitable trades using this strategy when implied volatility is low. It emphasizes that options allow leveraged profits when the underlying asset's price stays within a defined range.
Chapter8 International Finance ManagementPiyush Gaur
This document provides sample answers and solutions to end-of-chapter questions and problems from a chapter about managing transaction exposure. It defines transaction exposure and differentiates it from economic exposure. It discusses and compares hedging transaction exposure using forward contracts versus money market instruments. It also compares the costs of hedging with forward contracts versus options contracts. Additional questions and problems cover topics like currency options, cross-hedging, and the effects of hedging on tax obligations.
This document provides information on international finance topics including international banking, money markets, bond markets, equity markets, and derivatives markets such as currency futures, options, and swaps. It discusses the key features of currency futures contracts including standardization, daily settlement, margin requirements, and major currency futures exchanges. Examples are provided to illustrate how to read currency futures quotes and calculate profits and losses from long and short futures positions.
This document provides information on international finance topics including international banking, money markets, bond markets, equity markets, and derivatives markets such as currency futures, options, and swaps. It discusses the key features of currency futures contracts including standardization, daily settlement, margin requirements, and major currency futures exchanges. Examples are provided to illustrate how to read currency futures quotes and calculate profits and losses from long and short futures positions during daily settlements.
A course for advanced students who want to understand how options really work
John Olagues
www.truthinoptions.net
olagues@gmail.com
504-875-4825
http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470471921.html
A TYPICAL USE OF MANAGERIAL ACCOUNTING IS TO:SophiaMorgans
This document provides sample questions that appear to be from a managerial accounting exam. The questions cover various topics including: identifying variable vs. fixed costs, break-even analysis, cost-volume-profit analysis, cost allocation, and decision making. The document aims to help students assess their understanding of key concepts in managerial accounting.
Explains Section 16 b of the Securities Act of 1934.
This statute is quite complicated, especially when getting into mergers and acquisitions, which have convertible bonds, notes, or warrants associated with the transactions. IRC Section 83-c-3 also complicates matters.
Illustrates that Dynamic Employee Stock Options are superior grants of equity compensation compared to Restricted Stock or Traditional Employee Stock Options
www.truthinoptions.com
olagues@gmail.com
504-875-4825
This document discusses foreign exchange concepts including forward premiums and discounts, forward contract settlement dates, and transaction exchange risk. It provides examples and explanations of how to calculate the annualized forward premium or discount given spot and forward rates. It also describes a foreign exchange swap transaction and the relationship between interest rates in the two currencies. Finally, it analyzes the transaction exchange risk faced by a company receiving payment in foreign currency in the future if it does not hedge, including the expected revenue and range capturing 95.45% of possibilities.
The document provides ground rules for an upcoming session, noting that cell phones should be silenced, avoid in/out movement during the session, and save questions until the end. The duration is estimated to be 50-90 minutes, and to contact the organizer if there is not enough time.
1) The document describes a compensation plan for a company called Easy Pha-Max that sells health products through a network of franchise partners.
2) Partners can earn money through retail sales commissions, enrollment bonuses for recruiting new partners, and a monthly residual bonus called the Strategic Loyalty Incentive based on global sales volumes.
3) The compensation plan is designed to reward partners for building a deep organization by recruiting new partners who also recruit others, in order to achieve the highest monthly bonuses.
The document describes two option strategies implemented on SBI stock - a bull call spread before the company's earnings announcement and writing straddles after. For the bull call spread, the stock was expected to rise with increased volatility before results. This strategy realized a profit. For writing straddles after results, the stock was expected to trade in a range with decreasing volatility. Utilizing the time decay over a long weekend, this strategy also proved profitable. The document analyzes the relevant market data and outlines the risk-reward profiles of both strategies.
Chapter 6Intervention with Euros Assume that Belgium, one of the.docxchristinemaritza
Chapter 6
Intervention with Euros Assume that Belgium, one of the European countries that uses the euro as its currency, would prefer that its currency depreciate against the U.S. Dollar. Can it apply central bank intervention to achieve this objective? Explain.
1. Indirect Intervention. Why would the Fed’s indirect intervention have a stronger impact on some currencies than others? Why would a central bank’s Indirect intervention have a stronger impact than its direct intervention?
2. Intervention Effects on Corporate Performance
Assume you have a subsidiary in Australia. The subsidiary sells mobile homes to local consumers in Australia, who buy the homes using mostly borrowed funds from local banks. Your subsidiary purchases all of this materials from Hong Kong. The Hong Kong dollar is tied to the U.S. dollar. Your subsidiary borrowed funds from the U.S. parent, and must pay the parent $100,000 in interest each month. Australia has just raised its interest rate in order to boost the value of its currency (Australian dollar, A$). The Australian dollar appreciates against the U. S dollar as a result. Explain whether these actions would increase, reduce, or have no effect on:
a) The volume of your subsidiary's sales in Australia
b) The cost of your subsidiary of purchasing materials (measured in A$)
c) The cost to your subsidiary of making the interest payments to the U.S. parent (measured in A$). Briefly explain each answer
4. Intervention Effects on Corporate Performance
Assume you have a subsidiary in Australia. The subsidiary sells mobile homes to local consumers in Australia, who buy the homes using mostly borrowed funds from local banks. Your subsidiary purchases all of this materials from Hong Kong. The Hong Kong dollar is tied to the U.S. dollar. Your subsidiary borrowed funds from the U.S. parent, and must pay the parent $100,000 in interest each month. Australia has just raised its interest rate in order to boost the value of its currency (Australian dollar, A$). The Australian dollar appreciates against the U. S dollar as a result. Explain whether these actions would increase, reduce, or have no effect on:
a) The volume of your subsidiary's sales in Australia
b) The cost of your subsidiary of purchasing materials (measured in A$)
c) The cost to your subsidiary of making the interest payments to the U.S. parent (measured in A$). Briefly explain each answer
Chapter 7:
Assume the following information:
Beal Bank Yardley Bank
Bid price of New Zealand dollar $.401 $.398
Ask price of New Zealand dollar $.404 $.400
Given this information, is locational arbitrage possible? If so, explain the steps involved in locational arbitrage, and compute the profit from this arbitrage if you had $1,000,000 to use. What market forces would occur to eliminate any further possibilities of locational arbitrage?
ANSWER: Yes, One could purchase New Zealand dollars at Yardley Bank for $.40 and sell them to Beal Bank for $.401. With $1 million ...
Bonus shares are additional free shares given to existing shareholders based on the number of shares owned, representing a company's accumulated retained earnings. Companies issue bonus shares to increase liquidity and shareholder participation when earnings per share rise substantially. For example, a company with Rs. 10,000 profit and 100 shares has an earnings per share of Rs. 100. To lower the price per share for retail investors and improve liquidity, the company may declare a 1:4 bonus issue, increasing shares to 500. This lowers the price per share to Rs. 20 while maintaining the same total market value. Bonus shares are accounted for by transferring reserves to share capital.
This document provides information about a presentation on disciplined trading given by Vancouver Disciplined Trading Hub (VDTH). The presentation introduces VDTH, discusses what disciplined trading means, and covers non-directional and directional trades. It also lists upcoming content for traders and holds a round table discussion. The document notes that VDTH is for educational purposes only and does not provide individualized recommendations or advice.
This document provides information about a Vancouver Disciplined Trading Hub (VDTH) meetup event. It states that the meetup will take place every Sunday at 6:00 PM at the Cedar Cottage Pub in Vancouver and every Friday at SFU Surrey. The meetup is hosted by Karim Adatia, Maki Yanagi and other financial educators. The meetup will cover topics related to disciplined trading such as predefining risk, cutting losses, and using systematic money management plans. It also advertises workshops and training programs on non-directional and directional trades.
This document provides information about a Vancouver Disciplined Trading Hub (VDTH) meetup event. It states that the meetup will take place every Sunday at 6:00 PM at the Cedar Cottage Pub in Vancouver and every Friday at SFU Surrey. The meetup is hosted by Karim Adatia, Maki Yanagi and other financial educators. The meetup will cover topics like what disciplined trading is, inspiration from traders like Mark Douglas and Norman Hallet, non-directional and directional trades, and include a practice trade and round table discussion.
Case Problem 15.2 Jim and Polly Pernelli Try Hedging with Stock In.docxcowinhelen
Case Problem 15.2 Jim and Polly Pernelli Try Hedging with Stock Index Futures
Jim Pernelli and his wife, Polly, live in Augusta, Georgia. Like many young couples, the Pernellis are a two-income family. Jim and Polly are both college graduates and hold high-paying jobs. Jim has been an avid investor in the stock market for a number of years and over time has built up a portfolio that is currently worth nearly $375,000. The Pernellis’ portfolio is well diversified, although it is heavily weighted in high-quality, mid-cap growth stocks. The Pernellis reinvest all dividends and regularly add investment capital to their portfolio. Up to now, they have avoided short selling and do only a modest amount of margin trading.
Their portfolio has undergone a substantial amount of capital appreciation in the last 18 months or so, and Jim is eager to protect the profit they have earned. And that’s the problem: Jim feels the market has pretty much run its course and is about to enter a period of decline. He has studied the market and economic news very carefully and does not believe the retreat will cover an especially long period of time. He feels fairly certain, however, that most, if not all, of the stocks in his portfolio will be adversely affected by these market conditions—although some will drop more in price than others.
Jim has been following stock index futures for some time and believes he knows the ins and outs of these securities pretty well. After careful deliberation, Jim and Polly decide to use stock index futures—in particular, the S&P MidCap 400 futures contract—as a way to protect (hedge) their portfolio of common stocks.Questions
a. Explain why the Pernellis would want to use stock index futures to hedge their stock portfolio and how they would go about setting up such a hedge. Be specific.
1. What alternatives do Jim and Polly have to protect the capital value of their portfolio?
2. What are the benefits and risks of using stock index futures to hedge?
b. Assume that S&P MidCap 400 futures contracts are priced at $500 × the index and are currently being quoted at 769.40. How many contracts would the Pernellis have to buy (or sell) to set up the hedge?
1. Say the value of the Pernelli portfolio dropped 12% over the course of the market retreat. To what price must the stock index futures contract move in order to cover that loss?
2. Given that a $16,875 margin deposit is required to buy or sell a single S&P 400 futures contract, what would be the Pernellis’ return on invested capital if the price of the futures contract changed by the amount computed in question b1?
c. Assume that the value of the Pernelli portfolio declined by $52,000 while the price of an S&P 400 futures contract moved from 769.40 to 691.40. (Assume that Jim and Polly short sold one futures contract to set up the hedge.)
1. Add the profit from the hedge transaction to the new (depreciated) value of the stock portfolio. How does this amount compare to the $375,000 portfol.
FIN 402 Week 3 Case ProblemsCase Problem 6.1 Sara Decides to Tak.docxnealwaters20034
FIN 402 Week 3 Case Problems
Case Problem 6.1 Sara Decides to Take the Plunge
1. LG 1
2. LG 6
Sara Thomas is a child psychologist who has built a thriving practice in her hometown of Boise, Idaho. Over the past several years she has been able to accumulate a substantial sum of money. She has worked long and hard to be successful, but she never imagined anything like this. Even so, success has not spoiled Sara. Still single, she keeps to her old circle of friends. One of her closest friends is Terry Jenkins, who happens to be a stockbroker and who acts as Sara’s financial advisor.
Not long ago Sara attended a seminar on investing in the stock market, and since then she’s been doing some reading about the market. She has concluded that keeping all of her money in low-yielding savings accounts doesn’t make sense. As a result, Sara has decided to move part of her money to stocks. One evening, Sara told Terry about her decision and explained that she had found several stocks that she thought looked “sort of interesting.” She described them as follows:
· North Atlantic Swim Suit Company. This highly speculative stock pays no dividends. Although the earnings of NASS have been a bit erratic, Sara feels that its growth prospects have never been brighter—“what with more people than ever going to the beaches the way they are these days,” she says.
· Town and Country Computer. This is a long-established computer firm that pays a modest dividend yield (of about 1.50%). It is considered a quality growth stock. From one of the stock reports she read, Sara understands that T&C offers excellent long-term growth and capital gains potential.
· Southeastern Public Utility Company. This income stock pays a dividend yield of around 5%. Although it’s a solid company, it has limited growth prospects because of its location.
· International Gold Mines, Inc. This stock has performed quite well in the past, especially when inflation has become a problem. Sara feels that if it can do so well in inflationary times, it will do even better in a strong economy. Unfortunately, the stock has experienced wide price swings in the past. It pays almost no dividends.
Questions
a. What do you think of the idea of Sara keeping “substantial sums” of money in savings accounts? Would common stocks make better investments for her than savings accounts? Explain.
Answer: It is not a smart idea for Sara to retain substantial sums of money in her savings account for the reason that she could potentially make more money by investing in stocks. For example, the average rate for a savings account is 0.06%, and if you invest in stock, you can make anywhere from 0-15% depending on the amount of risk you is willing to take.
b. What is your opinion of the four stocks Sara has described? Do you think they are suitable for her investment needs? Explain.
Answer: Three out of the four stocks are ok investments to make since there is so little information provided. I do not think the NASS is a good i.
This document provides information about an upcoming event hosted by Vancouver Disciplined Trading Hub (VDTH). The event will take place on Sundays at 6:00 PM at the Cedar Cottage Pub in Vancouver and on Fridays at SFU Surrey. It will feature presentations by financial educators on the topics of disciplined trading, inspiration from trading experts, and non-directional and directional trades. The presentations are intended for educational purposes only and do not constitute investment advice.
This document provides information about an upcoming event hosted by Vancouver Disciplined Trading Hub (VDTH). It introduces the presenters and their backgrounds. The presentation will cover topics like what disciplined trading is, inspiration from other traders, non-directional and directional trades, and content for the week. It emphasizes the importance of predefining risk, cutting losses, and using a systematic money management plan in disciplined trading. The disclaimer notes that VDTH is not providing individual recommendations or advice.
Hedging transaction exposure using forward contracts versus money market instruments can produce the same results under certain conditions. Forward contracts allow selling or buying foreign currency receivables or payables at a set future rate. Money market hedges involve borrowing or lending the present value of foreign currency amounts to create offsetting positions. If interest rate parity holds, the two methods are equivalent. Options contracts provide advantages over forward contracts by allowing the hedger to decide whether to exercise based on the realized exchange rate, eliminating downside risk while retaining upside potential.
This document is a slideshow presentation on options trading. It introduces Prosperis Passive Income Strategies (PPIS) and its founder Karim Adatia. The presentation covers what options are, demonstrates a sample trade using the iron condor strategy, and reviews PPIS's track record of profitable trades using this strategy when implied volatility is low. It emphasizes that options allow leveraged profits when the underlying asset's price stays within a defined range.
Chapter8 International Finance ManagementPiyush Gaur
This document provides sample answers and solutions to end-of-chapter questions and problems from a chapter about managing transaction exposure. It defines transaction exposure and differentiates it from economic exposure. It discusses and compares hedging transaction exposure using forward contracts versus money market instruments. It also compares the costs of hedging with forward contracts versus options contracts. Additional questions and problems cover topics like currency options, cross-hedging, and the effects of hedging on tax obligations.
This document provides information on international finance topics including international banking, money markets, bond markets, equity markets, and derivatives markets such as currency futures, options, and swaps. It discusses the key features of currency futures contracts including standardization, daily settlement, margin requirements, and major currency futures exchanges. Examples are provided to illustrate how to read currency futures quotes and calculate profits and losses from long and short futures positions.
This document provides information on international finance topics including international banking, money markets, bond markets, equity markets, and derivatives markets such as currency futures, options, and swaps. It discusses the key features of currency futures contracts including standardization, daily settlement, margin requirements, and major currency futures exchanges. Examples are provided to illustrate how to read currency futures quotes and calculate profits and losses from long and short futures positions during daily settlements.
A course for advanced students who want to understand how options really work
John Olagues
www.truthinoptions.net
olagues@gmail.com
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A TYPICAL USE OF MANAGERIAL ACCOUNTING IS TO:SophiaMorgans
This document provides sample questions that appear to be from a managerial accounting exam. The questions cover various topics including: identifying variable vs. fixed costs, break-even analysis, cost-volume-profit analysis, cost allocation, and decision making. The document aims to help students assess their understanding of key concepts in managerial accounting.
Similar to Comparison of Apple ESO Strategies (20)
Explains Section 16 b of the Securities Act of 1934.
This statute is quite complicated, especially when getting into mergers and acquisitions, which have convertible bonds, notes, or warrants associated with the transactions. IRC Section 83-c-3 also complicates matters.
Illustrates that Dynamic Employee Stock Options are superior grants of equity compensation compared to Restricted Stock or Traditional Employee Stock Options
www.truthinoptions.com
olagues@gmail.com
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This presentation describes a New and Superior Design of Employee Stock Options which benefits all parties, the employer, the grantee and the Wealth Managers. It extends alignment, creates early cash flow to the employer, allows efficient risk management by the grantees without hedging and gives early Assets Under Management to the Wealth Managers.
www.truthinoptions.com
olagues@gmail.com
504-875-4825
This new design of employee stock options is an improvement for all parties. It enhances the purposes of the grants, and it helps the grantees more easily manage their grants. It helps the companies create earlier cash flows and allows for efficient risk reduction for employees and executives. It even helps the wealth management get earlier Assets Under Management.
Companies want employees to make premature exercises of ESOs and so do the W...Truth in Options
Examines the Stock Plan documents for Google and Cisco to see if hedging is allowed. There is no prohibition against hedging found. Most companies are the same.
Authors explain how companies receive early cash flows from early exercises of ESOs by employees. They explain the investments they make with the early cash flows. Companies want cash flows early and deceive holders of employee stock options to make early exercises which get more cash flow to the companies
Timing of Employee Options Exercises and Costs of Stock Options GrantsTruth in Options
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http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470471921.html
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olagues@gmail.com
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www.truthinoptions.net
olagues@gmail.com
504-875-4825
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Harvard Center for Law Economics and Business..,Bebchuk and Fried... Paying f...Truth in Options
Paper on some of the problems and solutions of employee stock options plan designs.
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Tax advantages of Employer issuing Employee Stock Options Ilona BabenkoTruth in Options
This paper explains that one of the reasons for issuing employee stock options is to achieve substantial tax savings from the exercise of ESOs, the earlier the better for the company.
This explains one of the reasons that companies encourage early exercises and why they discourage hedging.
http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470471921.html
Facts about managing your employee stock optionsTruth in Options
1. Executives like Steve Jobs often hold employee stock options (ESOs) until near expiration to maximize their value, despite companies preferring early exercises for tax and accounting benefits.
2. Hedging ESOs by selling calls and buying puts allows employees to reduce risk without forfeiting value to the company and avoids early taxes, better aligning employee and shareholder interests.
3. While some claim hedging is prohibited, most company policies do not ban it and financial advisors who advise against it may not understand its benefits or align with company interests over the employee's.
The only presentation where the allegiance is 100 percent to the employee/grantee of employee stock options.
The better you manage your employee stock options the more it costs the company.
The strategies promoted by this presentation is to:
a) avoid the premature exercise
b) hedge with puts and calls to reduce risk, save the remaining time premium and avoid taxes.
John Olagues
www.truthinoptions.net
olagues@gmail.com
504-875-4825
http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470471921.html
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OJPs are becoming a critical resource for policy-makers and researchers who study the labour market. LMIC continues to work with Vicinity Jobs’ data on OJPs, which can be explored in our Canadian Job Trends Dashboard. Valuable insights have been gained through our analysis of OJP data, including LMIC research lead
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Abhay Bhutada, the Managing Director of Poonawalla Fincorp Limited, is an accomplished leader with over 15 years of experience in commercial and retail lending. A Qualified Chartered Accountant, he has been pivotal in leveraging technology to enhance financial services. Starting his career at Bank of India, he later founded TAB Capital Limited and co-founded Poonawalla Finance Private Limited, emphasizing digital lending. Under his leadership, Poonawalla Fincorp achieved a 'AAA' credit rating, integrating acquisitions and emphasizing corporate governance. Actively involved in industry forums and CSR initiatives, Abhay has been recognized with awards like "Young Entrepreneur of India 2017" and "40 under 40 Most Influential Leader for 2020-21." Personally, he values mindfulness, enjoys gardening, yoga, and sees every day as an opportunity for growth and improvement.
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"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
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Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
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OJP data from firms like Vicinity Jobs have emerged as a complement to traditional sources of labour demand data, such as the Job Vacancy and Wages Survey (JVWS). Ibrahim Abuallail, PhD Candidate, University of Ottawa, presented research relating to bias in OJPs and a proposed approach to effectively adjust OJP data to complement existing official data (such as from the JVWS) and improve the measurement of labour demand.
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Comparison of Apple ESO Strategies
1. .
Comparison of Selling Calls
against Apple ESOs
with the strategy of
Premature Exercise, Sell
and Diversify
2. .
Comparison of Selling Calls with Early Exercise
and Diversify
Assumtions:
1. You own 1000 Apple Computer Employee Stocks Options to buy stock at
$300 that have just vested after two years.
2. Apple is trading for $561 on June 1, 2012
3. The calls that expire in Jan 2014 have 19 months to expiration.
4.The January 2014 calls with an exercise price of $600 are trading for $9380
each.
5. You have $60,000 of loss capital carry fowards from previous other stock
positions that were liquidated.
5. You have a choice of selling 6 calls or making early exercises and sell the
stock and diversify into the S & P 500 trading at 1278 on June 1, 2012.
6. You are a resident of California.
3. .
If you exercise the 1000 ESOs and sell the stock at $561 you will net after tax
approximately the following amount after forfeiting 100% of the "time value".
$561,000 - $300,000 x 55% = $143,550.
You would have terminated your alignment with the company 100%. Effectively
you have made a bet against Apple and in favor of a bet on the broad market.
--------------------------------------------------------------------------------------------------------
If you sell 6 calls you will still own the 1000 apple ESOs and receive $56,280
from the call sales and retain 100% of the remaining "time value" in the ESOs.
You would have terminated about 40% of your alignment with Apple
shareholders and still assume a substantial risk in Apple stock.You will
however, have no broad market risk.
If the stock is below $600 on Jan 20, 2014 the net gain on the sale of the calls
would be $56,280, because you would be able to deduct the loss carry forward
against the gain from the options sale.
--------------------------------------------------------------------------------------------------------
If both the S&P 500 and Apple were unchanged on Jan 2014, the value of the
sell calls positions would be $56,280 plus the value of the unexercised ESOs.
The value of the S&P 500 position is $143,550.
4. If both positions were, down 25 % in Jan 2014 the following would be the result.
Apple would be trading at $420.75 and the ESOs would be valued at $161,000,
plus there was an after tax gain of $56,280 on the calls sold.
.
The S&P 500 would be trading at 958 making the $143,550 have a value of
$107,662.
------------------------------------------------------------------------------------------------------
If both went up 25%, Apple would be trading at $701.25 making the ESOs equal
$401,250 plus the remaining time premium of $14,000 but the sale of the six calls
would have caused a loss of $3720.
The $143,660 in the S&P 500 index would equal $179,575.
As can be seen in all of the circumstances outlied above, the sale of calls versus
premature exercises, sell and diversify is far superior.
If the call seller wished to protect against extreme moves he/she could buy a small
amount of puts and sell fewer calls. This would reduce the profits if the stock made
just small percentage moves. Ajustments to the positions, after the inital trades,
can also be made to create even better results that those shown.
5. In Summary, the larger the "time value" remaining in the ESOs, the greater the
case becomes for risk reduction and the greater the case is for selling calls
and/or buying puts.
.
Those advisers who do not understand the merits of selling calls or buying puts
to a lesser extent, are not qualified to give advice on how to handle your equity
grants. They should restrict their advice to selling whole life insurance or
annuities.
Those advisers who do understand the superiority of selling calls and refuse to
advise doing so are violating their fiduciary duty and are setting themselves up
to be sued or brought to arbitration. Those who endorse the premature
exercise, sell and diversify strategy in articles or books are accessories before
the fact to violations of 10 b-5 which applies to deceipt and misrepresentations
in connection with the sale or buy of a security.
John Olagues
504-875-4825
olagues@gmail.com
6. .
In the above four slides we demonstrated a choice of management strategies
for an employee holding ESOs on Apple stock on June 1, 2012 with APPLe
trading for $561.
Since then, Apple stock has increased $21 to $582 on June 22, 2012
The Jan 2014 calls with a strike price of $600 are down $.80 trading at $93.
The S&P 500 has increased from 1278 to 1335 or 4.46%, equally an increase
of $6402 for the diversified $143,000
The value of the 1000 ESOs have increased about $19,000.
So the advantage of the sale of the 6 calls versus the early exercise sell and
diversify is $13,000 in just 3 weeks, with less total risk. I will keep readers
appriaised of the results periodically.
7. .
At 11: A.M. CST, July 3, 2012
Apple is trading at $599.50 up 38.50 x 1000 = $38,500 for the 1000 shares.
The six calls are trading at101.50 therefore losing 7.80 x 6 = $4,680
--------------------------------------------------------
The $143,000 that was "diversified into the
S& P 500 had increased 7.6% or $10,860
-----------------------------------------------------------
So the strategy of betting against the company stock and betting on the broad
market better known as, "early exercise, sell company stock and diversify" would
be far behing the strategy of selling calls by the following amount in just one
month.
($38,500 x 92%) - $4,680 - $10,860 = $19,880
This is just a further example of Wealth Managers having two choices
1. advise selling calls and/or buying puts
2. Violate their Fiduciary Duties and advise premature exercises, sell and
diversify.
8. .
On July 6, 2012, Google closed at $605.88 up $44,880 on the 1000 shares
from $561, making the employee stock options to buy 1000 shares at $300 up
$41,289.00 in value from June 1, 2012.
The 6 calls that were sold for $9380 each on June 1, 2012 were trading for
$10,400 each giving a loss of $6120 in total for the 6 calls sold.
The diversified investments on the S&P 500 index was up 6% from the June 1,
2012 price of $1278 to $1354.80, making the value of the diversified
investments up $8580.
So below is how the results compare so far.
A) Covered calls versus ESOs gives +$41,289 - $6120 = + $35,169 for the
long ESOs and short 6 calls since June 1, 2012
B) Diversified investments + $8580 since June 1, 2012
------------------------------------------------------------------------------------------------------
The gain from selling calls is almost 300% more than early exercise, sell and
diversify.
9. .
On the close of July 13, 2012, Apple was trading for $604.97 giving an increase
of $40,012 on the 1000 ESOs.
The Jan 2014, calls with ex.pr. of $600 were trading for $102.70, showing a
loss of $5340 on the 6 calls.
The net equals $40,012 - $5340 = $34,672.
On the other hand, the gain on the diversified porfolio is $8946. Making the
difference $34,672 - $8946 = $25,726.
10. .
At 9: 44 EST on July 20, 2012, Apple was trading for 613.
The six Jan 2014 calls that were sold for $9380 each were trading for $105.00,
giving a loss of $6900.
The value of the 1000 ESOs with the exercise price of $300.00 increased
approximately $48,000. The net increase in value is $ 41,100.
Had the 1000 ESOs been exercised, the stock sold and the net diversified,
there would have been an investment in the S&P 500 of $143,500, which has
increased by $10,100.
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So the comparison of the two strategies show the sell calls strategy ahead of
the early exercise, sell , and diversify strategy by $31,000.00 on July 20, 2012.
And there is still a substatial alignment between the grantee and the company.
The early exercise, sell and diversify strategy is essentially a bet against the
company and bet on the broad market with the money remaining after forfeiture
of "time value" and paying an early tax.
11. .
On July 31 at 12:00 Central Standard Time, Apple stock was trading for $609.49.
The calls that we sold are trading at $98.30. This makes the gains on the stock to
be equal to $48,490 and the gain on the ESOs since the stock was at $561 to be
equal to $44,126.
The loss on the 6 calls sold would be $2700 making the net gain equal to $41,
426.
The gain on the two Apple positions is about $30,000 more than the gain from the
S&P 500 Index from when it was trading for $1278.
The difference is much greater with the sell calls strategy.
12. .
On August 6, 2012 at 10:07 CST.
Apple was trading at $622.05 and the Jan 2014 calls with a $600 ex.pr. were
trading for $104.35.
So the stock is up $61,000 and the 1000 ESO are valued at approximately
$56,700 higher than when we sold the 6 calls at $9,380 each.
Therefore the Apple positions are valued as below:
ESOs are up $56,600
Calls are up $6,330
Net gain on the Apple covered write is $50,270
But the diversified position is up $14,000
The selling calls versus the ESOs have earned $36,270 more than the
diversified position and with less risk.
13. .
On August 13, 2012 at 9:56 A.M. CST. Apple was trading for $627.15, and the
exchange traded calls that have a strike price of $600 expiring in January 2014
were trading at $104.80.
The SPX 500 was trading for 1400.
So the 1000 shares were up $67,150 from $561 with the ESOs to buy the
stock at $300 going up $61,700. The the six calls that were sold are losing
$1100 each or $6600 in total. This makes the gain on the summed Apple
positions equal to $55,100.
On the $143,550 that was invested in the SPX 500 after exercise and sale,
there is a 9.7% gain equal to $13,700.
So the gain for the hedged Apple positions were better off compared with the
early exercise sell and diversify strategy by $41,400. These are the results with
Apple stock up about 11% and the SPX 500 up about 9.7%.
Why would anyone promote the early exercise, sell and diversify strategy if they
have the interests of the clients as primary because it certainly is not in the
client's best interest to do so.
14. .
On August 31, 2012, Apple closed at $665.24, showing an increase of $104.24
since we started the camparison. The ESOs with an exercise price of $300, with
an average delta of .96, increased about $99.50.
The January 2014, $600 calls last traded at $135.10, giving a $41.30 loss to the
sellers of the calls at $93.80.
The SPX 500 increased about 10%, giving a $14,500 increase to the "diversifier".
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So the 1000 ESOs increased in value by $99,500 and the sale of the 6 calls
showed a loss of $24,780. So the summed gain is $74,720
On the other hand the SPX 500 made only $14,500.
Therefore the difference is $60, 220.00 to the seller of calls versus the Apple
ESOs compared to the premature exercise, sale and diversify strategy. And the
risk was less with the Apple positions than with the "diversified" SPX 500.
The benefits of selling calls versus "diversifying" is so strong that advisers who
refuse to promote the strategy violate their fiduciary duty to their clients.