FIN361 �FINAL PROJECT�GROUP-10�

Abdullah Al-hqbani-437104221

Rayan Aljuwaiber-438100762

Saud Al-Rajhi-438103902

INTRODUCTION

EQUITY PORTFOLIO

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In the first part of the project, we started by creating an equity portfolio of 13 stocks and 2 ETFs of our choice from at least five different sectors.

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HEDGING THE EQUITY PORTFOLIO

-The process of Hedging the Equity Portfolio consists of The following Parts:

-In the beginning, we obtained the required information in Yahoo Finance, which is the prices of stocks and funds during one year, changing daily .

-In the second step, we calculated the returns for all the funds and shares for a whole year, after that we calculated the returns of the portfolio, which is by multiplying all the weights of the shares by all the returns on the shares plus all the returns of the funds multiplied by the weight of the funds from the portfolio, and here we have all the data required to calculate the beta, which is a slope of the portfolio returns and the returns of the index (S&P 500) and the beta output is 1.4

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COMMODITY FUTURES

According to our historical data on gold and how it behaves during Geo-political uncertainty, investors show a tendency to commodities in general and gold in particular as the Russian - Ukraine conflict happened back in 2014 commodities were surging high

So we took the opportunity back in Feb of this year to go long on a certain community because of an on-going Geo-Political Uncertainty .

So we choose gold.

Results: we have bought 250 contracts in the beginning of this project at 1928، Unfortunately, our predictions were wrong, and the price dropped to 1813.90

COMMODITY FUTURES

• We would also like to clarify our mistake

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• Which was The last trading day being the final day that a futures contract can be traded or closed out. Any contracts outstanding at the end of the last day trading …

OPTIONS AND THE UNDERLAYING STRATIGIES

Protective put- Cisco Systems:Involves buying a European put option on a stock and the stock itself

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Implemantion: we bought 10,000 shares of Cisco Systems at 50.49 along with 100 long put contracts at a strike price of 48.50 and premium of 0.76

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Results: The put premiums had cost 7600 and we predicted that the stock will go above the breakeven point but unfortunately the stock fell until 49.13

Transaction history

Markt - sell

OPTIONS AND THE UNDERLAYING STRATIGIES

Covered Call- UPS: consists of a long position in a stock plus a short position in a European call option.

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Implemantion: we have written 26 calls at a premium of 3.50 and bought 2600 shares in the company at a price of 188.48

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Results: we have received 9100 from the premiums at the time of initiating the strategy and the stock price، In the end, the share price reached 177.18, which is lower than the price of the breakeven, which is 184.98, and the result of the loss is -29380, but there is a Premium 9048, so the net loss is -20332

Transaction history

���Duke Energy Corporation (DUK)���Duke Energy has delivered 3.0% dividend growth per year on average over the past 10 years, which makes our choice for it in the energy sector a valid addition to our portfolio

Ford Motor Company (F)��-Ford has stated that they are planning on bringing electric vehicles to American customers, and that is their mode of F-series trucks which is environmentally and technologically advanced�������Caterpillar Inc. (CAT)��-with the recent developments in the political "mind-games" between Russia and the US, most stocks have taken a hit, which leads us to believe that it’s a perfect time to buy stocks that have potential. ��

Apple Inc. (AAPL)���-apple's conference is commonly known to be in early June, but the leaks and news of what the conference might entail still effect the price as these news continue to be talked by the people but ignored by the company itself.�����Pfizer Inc. (PFE)���-As Moderna's CEO have done some “questionable" actions lately, such as, deleting his twitter account just after dropping a massive load of the stocks he used to hold, this of course does effect Moderna badly, but benefits Pfizer as the leading company in the health care

�Meta Platforms, Inc. (FB)��-the whole world witnessed the " 25%" drop that the stock has seen early this month,and that was the biggest lost in value sets in all-time, but the meta platform is too big to fail.������Walmart Inc. (WMT)��-It currently has a Growth Score of A, as well as the known reputation of competent payments to its employee, as it has a reputation of being the best to work from its sector, which then makes the productivity and engagement better, hence, an incredible service ��

Amazon.com, Inc. (AMZN)��-there has been many speculations about if amazon is planning to make a stock-split in the near future or not, the stock-split has shown "historically" that the price increase when the it’s announced.������Bank of America Corporation (BAC)���-as for certain valuations, some investors say, the stock is undervalued

Twitter, Inc. (TWTR)��-as for jack’s announcement for his retirement as CEO of twitter, the price saw an increase after it, because jack is known to make decisions that are extremally unorthodox to the business. Therefore, a lot of people have faith in new changes from the new CEO that will help the company.������Tesla, Inc. (TSLA)��-as America’s way is more (green-oriented) that ever, with the new administration�, tesla without a doubt will benefit from a more “climate change” awareness as people will listen and learn to the benefits of electric-cars ��

NVIDIA Corporation (NVDA)��- for the latest Nvidia micro processors, the competitor’s prices are not close, nor is the quality. And the uses of these processors are as many as ever, as people use them now for mining-crypto other technological uses.��������Netflix, Inc. (NFLX)��-Netflix has seen a drop in its stock price after not delivering on key factors, such as new subscriber target, low cash position and low subscribers growth target, still, but the company is dominating in its field as the leading streaming service when it comes to number of users

• EFTs�Schwab U.S. Large-Cap Growth ETF (SCHG)��-Schwab U.S. LargeCap Growth ETF holds a Zacks ETF Rank of 2, and that’s based on three factors ��1-expected asset class return�2-expense ratio� 3-momentum

EFT��Vanguard Information Technology Index Fund (VGT)��-Vanguard Information Technology ETF holds a Zacks ETF Rank of 1, that also based on several aspects such as:��1-expected asset class return�2-expense ratio�3-momentum

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Initial investment’s total after liqutation (820363.9 )

(-976145.6 ) this makes our

After we sold all our stocks and EFTs����this makes our gain/loss (purchase price-sale price)���=(-976145.6+820363.9)��=(-155782)��this makes our investment was a loss estimated at total loss of (15.95%)

Bull spread�Wells Fargo & Company (WFC)

As we missed the opportunity to exercise, nor selling the premiums. this makes our total loss at 9500

Bull spread�Wells Fargo & Company (WFC)

If exercised the position, we would’ve made a profit of 13000 this means our gain would be =3000

Transaction history for Wells Fargo & Company WFC

�strip strategy�Mastercard Inc (MA)�for the implementation of the strip strategy, we need to have the same strike price, and the same maturity date.�

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results: 102727 after exercising (133950) paid as premiums +(567000)=(535777) loss

Transaction history for our strip strategy Mastercard Inc (MA)

�strip strategy�Mastercard Inc (MA)�

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results: 102727 after exercising+33600 (133950) paid as premiums =1177 gain

Strip strategy

strap�Costco Wholesale (COST)�as for the strap strategy, it’s the same requirements as the strip, but the key difference is for each 1 put, we have two calls. S1:552

Results: gained 903210-(501600) premiums+(705600) =(303990) loss

Transactions history for our strap strategy Costco Wholesale (COST)

Transactions history for our strap strategy Costco Wholesale (COST)

strap�Costco Wholesale (COST)�

Results: gained 903210+840-(501600) premiums =402450 gain

Strap strategy

�Excel Application - Requirement I:�

we are mandated with creating a unique payoff structure using 1- month put options. The payoff is as follows:

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• We've identified the strategy that replicates this payoff: 2 long puts and 2 short puts
• Assuming the stock was trading at 710 on May-19-2022

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Excel Application - Requirement ii:��Binomial tree construction :

�Excel Application - Requirement ii:��As you can see below those are the different applied strike prices to get different option premiums �

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• K1 = 690 , Opition Premium = 55.8
• K2 = 705 , Opition Premium = 63.9
• K3 = 715 , Opition Premium = 69.3
• K4 = 730 , Opiton Premuim = 77.5

Excel Application - Requirement iii:��Pay off and profit loss diagram :

Excel Application - Requirement iv:��Break even price

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• Lowest strike price + net cost (premium)

= 690 + 0 = 690

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• Highest strike price - net cost (premium)

= 730 + 0 = 730

Excel Application - Requirement iv:��Assumptions:

• Low volatility

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• No Expectation about whether the price go up or down

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• He need initial investment 0 dollars . Why?

Premium Given (–) Premium Received

($63.9+$69.3) – (55.8+77.5) = 0

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CONCLUSION

• In this project, we learned a lot of derivatives & new skills, like how to trade derivatives contracts, as well as how to avoid risks by hedging, It can be summarized the skills we have acquired as follows:
• Knowledge, we acquired about financial derivatives.
• Solving the problem of portfolio risk by hedging.
• How to estimate option prices using Binomial tree.
• Construction of different option spreads .
• And much more .. etc

THANK YOU�FOR �LISTENING�