Finance – Speculating With Options

NOTE: This assignment requires that the 1st part (steps 1-4) be performed and implemented during trading hours before the 2nd part (steps 5-6) can be performed.

1. Pick a stock or an index to develop an option strategy. This requires making a prediction of whether that stock or index will go up, go down, stay neutral, or simply be volatile in the near future. You could use a charting technique from Chapter 8 if you like. (www.bigcharts.com for example)

2. Develop an option strategy. You can use Chapter 15 or the following Stock-Trak website to assist in your strategy selection: https://www.stocktrak.com/optstrats.htm

3. Go to “Trading” on Stock-Trak and click on “Options”. You can decide how much money you want to “bet”. Perform your selected option strategy by making the necessary option trade(s). Use symbol lookup to find the ticker for the option(s) you want. I recommend copy and paste for the ticker symbol.

4. Write a few sentences to describe how you decided upon your strategy.
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5. After your trade has been implemented (during trading hours), check your position at “Open Positions”, click on “Options” on Stock-Trak. Close out your positions by clicking “S” under “Action” on your option holding(s). This should set you up to do the reverse trade.

For example, if you bought an option (buy), the reverse trade is to sell the option (sell). For example, if you wrote an option (write), the reverse trade is to buy a duplicate option to cancel out your position (cover).

Print out the “Transaction History” page to show that you closed out your positions.

6. Write down whether you made or lost money based on this strategy. Tell why. For example: “I lost money because I was expecting the stock to go up and instead it went down.” Or for example: “I made money because the stock price went up as I expected.” Or for example: “Transaction costs ate my profits.”
What to turn in to me:
(a.) Printout of “Transaction History” showing the opening and closing of the options strategy. Circle those transactions.
(b.) A few sentences describing the logic behind the strategy decision.
(c.) Clearly show whether or not you made profits net of transaction costs.
(d.) A statement of why you made or lost money (for example, did you lose based on your prediction or simply because of transaction costs).
5 points extra credit for profit net of transaction costs (Due with the assignment on December 10)