The document provides a risk management report for a stock trading portfolio. It discusses the purpose of risk management in financial industries and outlines the trading strategy and research methods used, including fundamental and technical analysis of stocks like Apple, Facebook, Google, Microsoft, Amazon, eBay and Yahoo. It then analyzes the portfolio's performance using a weighted beta evaluation and discusses risk management strategies using index future contracts and option contracts to hedge risks from stock price fluctuations.

1. RISK MANAGEMENT
STOCK TRADING REPORT
LECTURER: TAI TRAN
Vuong Minh Chau – s3461886
Nguyen Hoang Phuc – s3461818
Le Duc Manh – s3461882
Trinh Le Dung – s3345234

2. TABLE OF CONTENT
Introduction ..................................................................1
Purpose of the report.......................................................................................1
Market............................................................................................................1
Trading strategy...............................................................................................1
Research method ..........................................................1
Fundamental analysis.......................................................................................1
Technical analysis ............................................................................................1
Fundamental analysis....................................................2
Apple...............................................................................................................2
Facebook.........................................................................................................2
Google.............................................................................................................2
Microsoft.........................................................................................................2
Amazon...........................................................................................................2
Ebay................................................................................................................3
Yahoo..............................................................................................................3
Risk Management Strategy............................................3
Analysis.........................................................................4
Transaction record...........................................................................................4
Technical analysis ............................................................................................5
Portfolio performance using Weighted beta evaluation.....................................6
Risk management – Index future......................................................................6
Risk management – Option ..............................................................................7
Conclusion.....................................................................8

3. 1 | P a g e
INTRODUCTION
1. PURPOSE OF THE REPORT
The function of risk management department of financial industry has become more and more
important in recent years. This department is responsible for identifying, analyzing and providing a
rational basis for better decision making in regards to all risks. Furthermore, risk management
department is especially essential in stock trading market when there is a significant increase in this kind
of market. This report will discuss the function of risk management and also point out risk strategies
used to protect the trading profits during the period of stock trading in the market.
2. MARKET
U.S Market is aimed to be traded which include five biggest market in the world: Dow, NASDAQ, NYSE,
S&P 500 and Global Dow. In those market, NASDAQ and NYSE is chosen to be analyzed for conducting
the portfolio about risk management. NASDAQ includes AMZN, EBAY, GOOGL, AAPL, YHOO, MSFT while
NYSE includes TWTR. It is obviously that technology industries are becoming more and more developed
in modern society, therefore, this is the first reason why NASDAQ is chosen. Also, based on the
characteristics of this portfolio which conducts in short term, NYSE becomes the next ideal choice which
is known as the biggest stock market around the world.
3. TRADING STRATEGY
Two strategies are used for conducting this portfolio: the fundamental analysis and technical analysis.
Because of the characteristic of short term, technical analysis would be a main tools for prediction the
flow of each specific stock in the market. Besides, fundamental analysis would be used as a supportive
functions in the progress. The porfolio would be conducted from the beginning of March 2015 to the
end of April 2015. Each different stock will be recorded at different time.
II. RESEARCH METHOD
1. FUNDATMENTAL ANALYSIS:
The focus of fundamental analysis method is the market as a whole. This method will mainly
concentrate on the factors that directly affect the value of the financial assets through the performance
of chosen firms. Not only to the firms, but this method also takes into consideration those factors that
affect the industry and the economy at a bigger picture.
2. TECHNICAL ANALYSIS:
Unlike the above method, technical analysis will directly forecast the future value of financial assets
based on their past price movements. Similar to weather forecasting, this method does not ensure
absolute predictions about the future but instead, help investors anticipate what is “likely” to happen to
the prices over time. The important criteria in this technique, according to Cory and Chad (n.d), are that:
“The market will discount everything; prices move in trend; and history tends to repeat itself”.

4. 2 | P a g e
III. FUNDAMENTAL ANALYSIS
1. Apple (AAPL):
The last quarter of 2014 was the biggest successful in the history of Apple with the increase of more
than 37% in the corporate profit and 9% in their shares price in the premarket trading (CNN,
2015). More importantly, Apple did repurchase $5 billion in shares in the 2014’s last quarter. This
year, the firm will maintain and develop their capital return program, in the hope of boosting around
8-10% in their Earning per share (The Motley Fool, 2015). Investing in Apple is, thus, worth considering.
2. Facebook (FB):
It is expected that in the first quarter of 2015, Facebook’s revenue will increase by 49%, compared to
the last quarter of 2014. Moreover, after reaching a peak of 82% in Advertise revenue (the key driver
in its business growth), the company has acquire Parse - a mobile operating system, showing its
ambitious to take over the internet industry (The Fool Money, 2015). However, the most important
reason for choosing Facebook in this portfolio is that the company is not considered a rival of both
Google and Apple as the 3 firms are in different areas.
3. Google (GOOGL)
Google is known as a biggest searching engine on the internet with numbers of people use its searching
tool every day. However, Google seems is not satisfied with what it achieved, lately, Google decided to
expand its operation into mobile network. According to Jain (2015), Google is planning to corporate
with Hutchison, a company which provides global network infrastructure and technical support, to gain
access into mobile network in England, Ireland, Italy and many other countries that have access to
Hutchison’s network ( Jain 2015). Moreover, Google is considering to replace SIM on mobile phone
with its software which enable clients to get into Google’s network from another available networks
(Jain 2015). Therefore, with its plan to expand into mobile network, Google assists clients to easily
access into its network for calling or texting or surfing websites without registered SIM or when they
are in different countries where require available network in those countries. As a result, with the
convenience provided by its software as well as expanding network, Google can gain a huge number of
clients to join its network. Hence, it is believed that Google’s share will increase, thus, investors should
to buy GOOGL.
4. Microsoft (MSFT)
Microsoft Corporation is known as a multinational technology company that develops, manufactures,
supports and sells computer software. On the stock market, Microsoft also get great amount of shares.
In the first quarter of 2015, Microsoft share price declined significantly due to two reasons. The first
one was the decreased revenue from Windows (Neowin) and the second reason was window 10 would
be a free upgrade for everyone (The street). This point made many experts to doubt about the issue
how Microsoft can gain benefit when they set everything to be free. Fortunately, in the second quarter
of 2015, thanks to the new system produced for mobile phone – Surface – increased the revenue to
1.1 billion USD, which rose 24% comparing to last year at the same period. Therefore, this is the
suitable time to buy Microsoft shares.
5. Amazon (AMZN)
In the first quarter of 2015, though the price of share fluctuates at some point, the development of
AMZN is expected to increase slightly. According to Thestreet, they report that comparing to the same
quarter of prior year, the performance of AMZN is better through high revenue growth, good cash flow
from operation. However, disappointing return on equity and high debt to equity in this quarter is also
the weaknesses caused unstable share price. Hence, it is difficult to predict the price base on

5. 3 | P a g e
fundamentals. Moreover, in this year, AMZN has some projects to co-operate with their partners to
release new Echo devices and film’s products which raise a hope to succeed in the future
(Marketwatch 2015). As a consequence, the price may increase in the future.
6. EBAY
Ebay is a multinational corporation and e-commerce company which provides service through
Internet. According to Larry, the first quarter of eBay will be quite bored with disappointing financial
results because its financial data suggests below par growth in fixed price compared to the overall
sector. However, this result is still better compare to the Q4 with 5% increasing buyer growth from last
period (Larry 2015). In addition, on 15th April, Rebecca reported JD.com has announced that eBay will
be among its partner to sell products in China’s marketplace. As a result, this cooperation will expand
the global reach of eBay and give Chinese shoppers more chance to access popular brands and
products from the U.S. Therefore, the company may do well in the future and encourage investor to
invest in eBay.
7. Yahoo (YHOO)
Yahoo Inc. is an American multinational Internet corporation which includes Yahoo Mail, Yahoo
Finance, Yahoo Group, etc. After a long decrease in share price from 2008 to 2011, in 2012, Yahoo
could overcome the obstacles with the management of Marrissa Mayer. Especially, in 2014, Yahoo gain
much benefit because Alibaba Group share increased prior to the IPO launch. (Forbes) It can be said
that Alibaba Group – a Chinese Internet company to be Yahoo’s hero. Economists predicts that in
2015, Yahoo will keep soaring and this is the good time to invest in Yahoo
IV. RISK MANAGEMENT STRATEGY
In this report, we will both use option contract and future contract in order to hedge the risk related to
the fluctuation of the price share. However, each type of contract also has some advantages and
disadvantages and both of them will be discussed below.
The first one is an option contract. Option contract permits the holder to sell or buy an underlying
product at a strike price. Moreover, option contract gives customers the right, which means they can
either sell( or not) or buy(or not) at expire day. The price of the contract is directly affected volatility,
risk free and time to maturity.
Advantages Disadvantages
Cost
The cost is inexpensive for investors, but
investors can directly enter into the
instrument market without pay for the
stock.
The option may worthless if the expiry price
does not match the exercise price in case of
the investors buy option contracts.
Hedging
Option contracts help to reduce the
losses
The investor may forecast the time and
direction of share price incorrectly and this
will lead to losses as a result.
Leverage
The cost pay for the option contract is
small; however the gain in the future
may be unlimited.
If the gain also be unlimited, the downside
that the loss could be the same.
Return
Option helps investors gain more return
because of right determination of time
and direction of stocks.
If investors forecast the future stock price is
wrong, the option will become useless.
Diversification If the portfolio including numerous of Diversification cannot reduce systematic

6. 4 | P a g e
stocks, the investors can buy options for
those stocks in portfolio as well.
risk possibly.
Regulation
Terms and conditions of listed options
are regulated, hence it is easy for users
Sometimes, there are some regulations that
restrict the exercise (OCC, SEC, court, other
regulatory agency).
Future contract is a contractual agreement that allows both parties to sell or buy commodities, financial
instruments at at a specified price on a pre-determined date. Rather than giving a right as options,
future contract is compulsory for both counterparties to complete the contract. Furthermore, the
quantity of future contract is standardized and this is hard for customers to get exactly what the volume
they want.
Advantages Disadvantages
 Less credit default risk: the job of clearing
house is to solve the fail of one party to
pay its financial obligations, hence the risk
is reduced to null or minimized.
 Low transaction cost: cost savings from
finding counter parties.
 Hedging: as a function of future, it helps
to match the need between the two
parties.
 Daily marking to market: the clearing
house daily calculates the loss/profit for
you, then easier to buyer/seller to
calculate their remaining accounts.
 Higher price visibility: because more
people trade, so that it is more flexible for
people to get the desired price.
 Responsibility to complete the contract: the
long and the short position holders have the
obligations but not the option to carry out
the transaction.
 Less flexibility: as the quantity of futures are
standardized that sometime it does not
match the quantity of buyers and sellers.
 Short term hedge: for the one who is
looking for long term hedge, this hardly to
happen.
 Margin calls: introduce uncertainty of cash
flow and potential higher transaction costs.
 Hedging: due to different maturity, quantity
and grade, mismatches are also likely to
happen.
V. ANALYSIS
1. TRANSACTION RECORD
Adaptedfromthe marketwatch(2015)

7. 5 | P a g e
2. TECHNICAL ANALYSIS
Period Stock
Trend
Support
point ($)
Resistance
point ($)
Recommendations
Fundament
al analysis
result
Decision
EMA SMA Over price trend
20/3-20/4 AMZN Slightly
constant
Down Fluctuate at some
point, upward trend
in general.
$372.83;
$373.59;
$374.34
$383.79;
$384.58;
$385.25
Do not buywhen the
price above $385.
Price down Sell at
$391.02
17/3-20/4 EBAy Down Down There was a
downward trend
$56.04;
$57.08
$58.34; $58.52 Buy at $56.04 and
do not buy at $58.52
Price up Buy at
$56.29
24/03 - 24/04 AAPL Slightly
Constant
Slightly
Constant
Reach its peak at
$137, currently
upward
$123.04 $127.03 Buy if price isaround
$123.
Do not buy if price is
around $126
Price up Short
selling at
$127.37
21/03 - 21/04 FB Constanly
up
Constantly
up
Cup with peak at
$85.76, currently
upward
$81.39 $83.52 Buy if price isaround
$81.
Do not buy if price
exceeds $83
Price up Short
selling at
$83.15
6/3-6/4 GOOGL Down Down Reached peak of
$580.8 and currently
in the downward
541.21;
541.51;
545.72
559.83; 549.49;
550.56; 551.17
Buy if P isbetween $
541 and $545 .
Don’t buy if P is
around $549
Price up Buy at
$544.63
13/3-13/4 TWTR Up Up Up 51.69;
51.77;
51.63;
51.76
52.38; 52.23;
52.16
Buy if P is $51.76 or
less
Don’t buy when P is
near to $51.16
Price up Buy at
$50.86
20/3 – 20/4 MSFT Up Up Reached the lowest
point at $40.44 and
currently in the
upward
$41.65 $42.90 Buy when price is
$41 or under. Don’t
buy when price is
around $42 or above
Price up Buy at
$41.14
20/3 – 20/4 YHOO Down Down Fluctuated, reached
the peak at $45.78
and the downward
$44.35 $45.07; $45.70 Buy when the price
is $44 or under.
Don’t buy when the
price is over $45
Price up Buy at
$44.72

8. 6 | P a g e
3. Portfolio performance using Weighted beta evaluation
Share
Share
β
Number of share in
the portfolio
Market price Market value
Weighted
beta
EBAY -0.78 -50,000 $57.02 -$2,850,750 0.2306
FB -0.74 -12,000 $82.71 -$992,460 0.0762
GOOGL 1.06 22,000 $541.04 $11,902,880 1.3087
MSFT 0.88 49,000 $42.26 $2,070,495 0.1890
YHOO 1.27 45,000 $45.73 $2,057,850 0.2711
APPL -0.84 -20,000 $127.37 -$2,547,400.00 0.2220
Total $9,640,615.00 2.2976
Risk free
rate 3%
Market
return 14.04%
Expected
value (*) 25%
4. RISK MANAGEMENT – INDEX FUTURE
At the time, index future strategy was constructed, portfolio contains following stocks
𝛽 = −0.78×
−2,850,750
12,188,015
+ (−0.74) ×
−992,460
12,188,015
+ 1.06 ×
11,902,880
12,188,015
+ 0.88×
2,070,495
12,188,015
+
1.27×
2,057,850
12,188,015
= 1.64
The number of futures contracts needed = 1.64 ×
12,188,015
4,472.1 × 100
= 44.695
NASDAQ market has been well performing through the strong impacts of energy price and change of
dollar’s value with the help of strong technology stocks, thus, it is believed that the market will continue
to outperform in next few months (The Wall Street Journal 2015). Therefore the market is bullish and due
to positive beta, the portfolio is expected to increase its value, hence we underhedge. Due to the trading
is taking place in short term. Therefore an index future contract which is expired at June 15 is chosen
because it has the shortest time to maturity. In June, SPI is expected to increase to 4,690.
Share Share β Number of share
in the portfolio
Market price Market value
EBAY -0.78 -50,000 $57.02 -$2,850,750
FB -0.74 -12,000 $82.71 -$992,460
GOOGL 1.06 22,000 $541.04 $11,902,880
MSFT 0.88 49,000 $42.26 $2,070,495
YHOO 1.27 45,000 $45.73 $2,057,850
$12,188,015

9. 7 | P a g e
Equity market Futures market
April Portfolio value is $12,188,015  Underhedge and positive beta.
 =>Sell 44 SPI Futures at 4,472.1
expiration June
 Get 4,472.1× 100 × 44 =
$19,677,240
June  Index is expected to change from 4,488.15 to
4,690 => price change =
4,690
4,488 .15
− 1 = 0.045
 β = 1.64 => β in June =1.64 × (1 + 0.045) =
1.714
 New value of portfolio =$12,188,015× 1.714 =
$20,890,257.71
 Close out short position:
 Buy 44 SPI Futures at 4,772.53
 Pay 4,772.53× 44 × 100 =
$20,999,132
Profit Profit = $20,890,257.71 − $12,188,015 =
$8,702,242.71
Future loss = $19,677,240 −
$20,999,132= − $1,321,892
Net $8,702,242.71 − $1,321,892 = $7,380,350.71
Index future strategy is used to hedge portfolio, but this strategy reduces the profit that portfolio can
generate. The value of portfolio increases as expectation before applying this strategy, and the index
future created a loss. As a result, index future made a loss of more than 1 million, which could not occur if
this strategy was not applied. Thus, entering index future contract is worthless.
5. RISK MANAGEMENT - OPTION
a. Risk arise and aware
Applying the Black-Scholes Model to evaluate the option prices and following these conditions:
 The option’s value on the expiry day is determined by the strike price and the spot price of the
securities
 Short-term risk-free rate is constant at 3%
 The time and trading are continuously following a random walk.
 The value at expiry cannot be negative and it is also intrinsic value
b. Apple (AAPL)
Based on both the fundamental and technical analysis, it is predicted that the prices of AAPL might increase in
the future. In the current position of short-selling and having sufficient fund, the final decision is to use Call
options contract to hedge. On April 9th, buy a Long Call option at $6.97, expired at May 1st and with the strike
price of $123.
Strike price (X)= $123 Stock price (S) = $125.95
Risk-free rate (r) = 3% Volatility (σ) = 34.27%
Time-to-maturity (t) = 23 days (23/365)
d1= 1.1420 -> N(d1)= 0.8733
d2= 1.0560 -> N(d2)= 0.8545
Call premium= $5.09

10. 8 | P a g e
Profit when not entering = (127.37 - 125.95) *20000= $28,400
Profit when entering= (125.95 - 123 - 6.97) *20000 = -$80,400
CONCLUSION:
The Call options were bought to hedge the risk that price of Apple would increase and therefore hurt our
position. The price did not increase as expected; indeed it went down to $125.95. We made a loss of $80,400
from buying the call options (when we were supposed to make $28,400 in profit). Thus, entering into the
option contract worsened our position.
Solution: We considered not exercising the right and reselling the option contracts for - $1.88/contract ($5.09
- $6.97=).
Profit= (127.37 – 125.95 – 1.88) *20,000 = -$9,200
Instead of making a loss of $80,400 when exercising the options, we only lost $9,200 for re-selling those.
c. Google (GOOGL)
Based on technical analysis, we were afraid that the price of Google might go down. As Google shares have
been bought, declines in its prices may adversely affect our wealth. Therefore, on April 15th we entered into
a Long Put contract priced at $12.30, expired on May 1st, with strike price of $550.0
Strike price (X)= $550.0 Stock price (S) = $537.96
Risk-free rate (r) = 3% Volatility (σ) = 19.74%
Time-to-maturity (t) = 16 days (16/365)
d1= -0.4831 -> N(-d1)= 0.6854
d2= -0.5244 -> N(-d2)= 0.70
Put premium= $15.77
Profit from not entering= (537.96 - 544.63) *20,000= - $133,400
Profit from entering= (550 – 537.96 – 12.30) *20,000= -$5,200
CONCLUSION:
When entering the Put option contracts, we were in fear that the price of Google would go down. The
stock’s prices indeed have followed our prediction when declined to $537.96. The option contracts have
offset our losses, so we only made $5,200 in loss, instead of losing $133,400. Transparently, the option itself
has successfully fulfilled our purpose of hedging.
V. CONCLUSION
To conclude, throughout fundamental analysis and technical analysis, the portfolio includes EBAY, YHOO,
APPL, GOOGL, FB and MSFT. In those shares, there is a risk control plan which uses Option. Option is applied
on APPL since the profit can decrease and it hurt our portfolio. Also, option is applied on GOOGL to hedge.
As a result, we would not lose much profit. Besides, applying Future to the rest of shares is worthless
because it made a loss of more than one million. Therefore, the option contract is just still efficient with
GOOGL and APPL.

11. 9 | P a g e
VI. APPENDIX
Holding portfolio
More transaction record
VII. REFERENCE
 Aman J., 2015, “Google Inc (GOOG) Cuts Deal With Hutchison To Offer Americans Free Roaming”,
Opptrends, viewed 7th April 2015 http://www.opptrends.com/2015/04/google-inc-goog-cuts-deal-
with-hutchison-to-offer-americans-free-roaming/
 Amanda S, 2015, ‘Amazone.com (AMZN) Stock Gets Price Target Increase Today at Jefferies’,
thestreet, 14 April, viewed 17 April 2015,

12. 10 | P a g e
<http://www.thestreet.com/story/13111379/1/amazoncom-amzn-stock-gets-price-target-increase-
at-jefferies-today.html?puc=TSMKTWATCH&cm_ven=TSMKTWATCH>
 Corrie D., 2015, “Nasdaq Composite, S&P 500 Close at New Highs”, The Wall Street Journal, viewed
28th April 2015 <http://www.wsj.com/articles/u-s-stock-futures-rise-putting-nasdaq-composite-on-
track-for-more-gains-1429878630>
 Daniel S., 2015, “Apple,Inc.Stock ReachesaNewHigh--3ReasonsNottoSell”,TheMotley Fool, viewed20thApril
2015<http://www.fool.com/investing/general/2015/02/02/apple-inc-stock-reaches-a-new-high-3-reasons-not-
t.aspx>
 Daniel S., 2015, “MarkYourCalendar:Facebook Inc.Earnings”,TheMotley Fool, viewed 8thApril2015
http://www.fool.com/investing/general/2015/04/02/mark-your-calendar-facebook-inc-earnings-in-april.aspx
 David G., 2015, “Apple just posted the best quarter in corporate history”, CNN Money, viewed 15th
April 2015 <http://money.cnn.com/2015/01/27/technology/apple-iphone-earnings/>
 Evan N., 2015, “Apple, Inc. Just Obliterated All Expectations”, The Motley Fool, viewed 20th April 2015
<http://www.fool.com/investing/general/2015/01/28/apple-inc-just-obliterated-all-expectations.aspx>
 Gene M., 2014, “Here Is Why Yahoo Is Now A Most Enticing Stock To Buy”, Forbes, viewed 15th April
2015 <http://www.forbes.com/sites/genemarcial/2014/10/02/here-is-why-yahoo-is-now-a-most-
enticing-stock-to-buy/
 Greg B, 2015,’ Amazon Hints at smart phone home future through Echo Devices’, marketwatch, 8
April, viewed 17 April 2015 <http://www.marketwatch.com/story/amazon-hints-at-smart-home-
future-through-echo-device-2015-04-08-111032251>
 Index Performance: Return (%), Morning Star, viewed 29th April 2015
http://news.morningstar.com/index
 Larry D, 2015, ‘Foreign Exchange To Dent eBay Inc (EBAY) Margins: SunTrust Robinson’, bidnessetc,
17 April, viewed 17 April 2015 <http://www.bidnessetc.com/40088-foreign-exchange-to-dent-ebay-
inc-ebay-margins-suntrust-robinson/>
 Leo S., 2015, “Facebook Inc Has Big Plans to Take Over the Internet of Things. “, The Motley Fool,
viewed 10th April 2015 <http://www.fool.com/investing/general/2015/03/28/facebook-inc-has-big-
plans-to-take-over-the-intern.aspx>
 Michael S., “Risk Management...the What, Why, and How”, Business Improvement Architects,
viewed 30th April 2015 https://www.bia.ca/articles/rm-risk-management.htm
 Rebecca B, 2015, ‘eBay Partner With JD.com On New International Online Marketplace’, Thestreet,
14 April, viewed 17 April 2015 <http://www.thestreet.com/story/13112569/1/ebay-partners-with-
jdcom-on-new-international-online-marketpla ce.html?puc=TSMKTWATCH&cm_ven=TSMKTWATCH>
 Tony O., 2015, “Microsoft (MSFT) Stock Declines Today After Announcing Windows 10 as Free
Upgrade”, Thestreet, viewed 25th April 2015
<http://www.thestreet.com/story/13018156/1/microsoft-msft-stock-declines-today-after-
announcing-windows-10-as-free-upgrade.html>

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 Trey W, 2015, ‘Amazon entices potential subcribers with free “Orphan Black”’, marketwatch, 15 April,
viewed 17 April 2015 <http://www.marketwatch.com/story/amazon-entices-potential-subscribers-
with-free-orphan-black-2015-04-15>
 Vlad D., 2015, “Microsoft stock takes plunge after quarterly results”, Neowin, viewed 20th April 2015
< http://www.neowin.net/news/microsoft-stock-takes-plunge-after-quarterly-results

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