Help with strategy

[oshea1690]

I am doing hw problems for my finance class. I am having trouble deciding on a strategy for the given problem. Any help is greatly appreciated.
You believe that the volatility of MSFT stock will decrease within the next 6 months. Specifically, you beleive that the price of MSFT will decrease by less than the historical volatility. You want to develop a strategy that will give you the best payoff in this situation by buying or shorting MSFT stock, and by buying or writing 6-month calls and puts. Develop a strategy and show how many puts and calls you will use and why. Assume you have 20,000$ to invest. Make relevant assumptions about margin requirements for shorting a stock, writing puts, and calls.

 

[nazzdack]

Quote from oshea1690:
----my finance class.

1) Do you attend Rutgers or Syracuse?
2) Are you on Spring Break at Daytona Beach or Fort Lauderdale?
3) Enjoy it!

 

[spindr0]

Quote from oshea1690:

I am doing hw problems for my finance class. I am having trouble deciding on a strategy for the given problem. Any help is greatly appreciated. [/B]

Sorry but this is the Organic Chemistry help BB.

 

[Soon2Bgreat]

Quote from oshea1690:

Specifically, you beleive that the price of MSFT will decrease by less than the historical volatility.

Assume you have 20,000$ to invest. Make relevant assumptions about margin requirements for shorting a stock, writing puts, and calls.

What size/type font would you like this done in?

Do you mean you believe the IV of MSFT will decrease < HV or do you actually mean price? If price, how are you differentiating the price and volty calculations?

 

[lindq]

Quote from oshea1690:

Assume you have 20,000$ to invest.

As you are in a finance class, it might be a good idea to first learn to put the $ in front of the number.

 

[newguy05]

This always works...

 

[brownsfan019]

As the above posts illustrate, it's safe to assume that many on this board are daytraders. Talking about something 6 months out is a long-term investment for some of us. Not one actual reply b/c most of are are looking at charts in 1 day that have many things going on and not making a 6 month trade/investment.

 

[newguy05]

i didnt really understand the question, so...

You believe that the volatility of MSFT stock will decrease within the next 6 months. Specifically, you beleive that the price of MSFT will decrease by less than the historical volatility.

What does this mean? the price of msft will decrease less than its vol in 6 months timeframe based on hv? So basically vol will implode while price wont decrease as much and the teacher is looking for a short vega short delta trade?

 

[Soon2Bgreat]

Quote from brownsfan019:

Not one actual reply b/c most of are are looking at charts in 1 day that have many things going on and not making a 6 month trade/investment.

Not sure that's fair, I tried to clarify what he's asking - either way, if he wants to make a bet on IV being different than HV he can buy/sell a straddle and hedge accordingly.

What I was trying to get at in clarifying the point about price was that it sounded like he could be trying to express a view about volatility on two time frames.

 

[spindr0]

Quote from brownsfan019:

As the above posts illustrate, it's safe to assume that many on this board are daytraders. Talking about something 6 months out is a long-term investment for some of us. Not one actual reply b/c most of are are looking at charts in 1 day that have many things going on and not making a 6 month trade/investment.

I think not. Doing his homework for him is instant gratification but serves no constructive purpose ... tho I really learned a lot from the talking giraffe in an earlier reply!