Strategy 6:
Long position in put options on the underlying shares is a strategy used to protect investors against possible decline in the value of the stock. In case of decline in price below the strike price, investor can exercise the put option and recover the loss in value below the strike price. The stock selected for execution of this strategy is Gilead Sciences Inc., a biotechnology firm, which analysts believe is headed for decline in price following Hillary Clinton’s tweet that biotechnology industry is involved in price gouging. Single contract on the stock of Gilead has been purchased because each contract is based on 100 stocks. Price paid per stock is $104.4. Same number of put options has been purchased @$4.8/share with a strike
…show more content…
Bear spread is earned based on the anticipation of decline in price of certain stock. For execution of this strategy, stock of Lululemon Athletica Inc. has been selected. Though there has been mixed opinion in the market about the future outlook of the company and the various measures taken by it to improve its organizational structure, my outlook on the company is bearish. Single contact based on a multiple of 100 shares has been purchased for $250($2.5 each) with a strike price of $60. Short position in the same stock has generated premium of $89 ($0.89 each) with a strike price of $57. Maximum loss is net cost of the options i.e. $161($250-$89). Maximum gain in this strategy is the difference in the strike price of long and short position minus net cost which turns out to be $483 (refer to payoff diagram …show more content…
Investor takes both long and short position in the same underlying with the same strike price and expiration date. For execution of this strategy, I have selected the stock of SunEdison Inc. the company is in the process of restructuring its operations and revamping its business strategies. These measures, if proved successful in boosting its revenues my push the price of the company up and vice versa. Strike price for both the call and put options is $8. Only contract has been selected for both these options. Total cost of the straddle is $103($12+$91) which is also the maximum loss under the strategy. Maximum profit in case of rise in price is infinite and maximum loss in case of price decline. Maximum loss is the strike price of put option minus total premium cost which in this case is $697 [($8-1.03)*100]. There are two break even prices in case of straddle and both are calculated by adding and subtracting the total cost from the strike price. In case of SunEdison Corp, break even prices are 9.03 and 7.97 as shown in diagram
Much like the test market Contribution margins were also high for Strike Roach Ender. Aerosol and fogger Strike had a contribution margin exceeding 50% as seen in Table E.
Rocket-Blast, LLC, a beverage maker, has seen its profit margins reduced which presents a real problem for the company going forward (Precord & Macdonald, nd). Management has decided that operating costs must be reduced in order to increase profit margins to
After calculating WACC my second analysis would be of the packaging machine investment. I will use incremental analysis and calculate NPV of the incremental cash flows of both strategies (to wait or to invest now). After calculating NPV’s of both scenarios I will calculate the difference between the two.
Kilpatrick, Marcus, Edward Hebert, and John Bartholomew. "College Students' Motivation for Physical Activity: Differentiating Men's and Women's Motives for Sport Participation and Exercise ." Journal of American College Health 54 (2005): 92. Mintel . Web. 4 Dec. 2013.
A company known as Apex Art was recently asked to prepare a bid on 500 pieces of framed artwork for a new hotel. If Apex Art wins the bid, then the benefits would lead directly to sales representative Jason Grant, whose income relies on commission. In other words, he would receive a large sum of money as a result of the winning bid. The cost accountant for Apex, Sonja Gomes, prepared the bid and calculated the total product costs of the framed artwork to be $121,000. Since the company policy states that the pricing must be at 125% of full cost, Gomes provides Grant a total amount of $151,200 to submit for the job. Grant notifies Gomes that at the price of $151,200, the company is incapable of winning the job. He confesses to Gomes that he had spent $500 of company funds to treat the hotel’s purchasing agent to a basketball playoff game where the purchasing agent revealed to him that a bid of $145,000 would win the job. At first, Grant had no intention of letting Gomes know of this information because he was sure that she would have developed a bid that would be below the amount that the purchasing agent told him about, $145,000. Therefore, he thoroughly explains to Gomes that if the company does not take advantage of the important information that the purchasing agent had revealed to him, then the $500 of company funds that he had spent would go to waste. Nevertheless, Apex Art would still generate some profit if it wins the bid at $145,000 because it is higher than the full cost of $121,000. In order to come to fair grounds, Gomes advises Grant to use cheaper materials for the frame, which will assist him in attaining a bid of $145,000. Since the artwork was pre- selected and thus cannot be altered, the total amount of cost redu...
There are two solutions that provide the optimal profit given the current constraints under which JP Molasses operates. Under these conditions, the optimal profit is $63,571. This profit margin is achieved in both cases with revenue of $942,354 and cost of $412,333 for material purchased and $466,450 for fixed and variable costs in processing, for total cost of $878,783.
Lululemon, a premium yoga-focused retail chain, serves two market segments. One segment consists of consumers who are characterized as “trendy urban” and the other segment consists of “wealthy” consumers. The “trendy urban” segment, in summary, is fashion oriented or active women who live in metropolitan areas. The “wealthy” market segment is affluent women who live in either urban or suburban areas. As discussed below, these two market segments are defined by differences in demographics, geography as well as behavioral and psychographic characteristics.
The presenting team started out by giving a background about the industry and the companies. The main issue and financial terms were explained. However we feel that some of the assumptions such as Merck's flexibility to back out from building the plant in case of failure were not clearly mentioned. They failed to explain why Davanrik's market risk was lower than its stand alone risk. Discounted cash flow method which is the traditional financial tool for evaluating capital allocation was rejected without explanation. We can rationalize not using DCF for its inability to capture risk uncertainty. Passive investments such as stocks and bonds are good candidates to use DCF on. Once these investments are made investors cannot influence the cash flow generation. We agree that decision tree can be used to make preliminary judgment and real option analysis can be used to get more definitive answer. We think that sensitivity analysis and scenario analysis could have been useful since all inputs may change over time.
...ises for each period. This diagram assumes a positive contango. Exhibit 9 however assumes negative contango, and as we can see this leads to a lower profit for each period. Since the contract does not have a permanent delivery date, then the company does not promise to deliver gold for any one particular year. Therefore there is little risk that the company hedges more gold than is deliverable using this strategy. American Barrick was able to negotiate agreements giving them a 10-year maturity. If the company were to rollover up until maturity and the spot price at that time is greater than the forward price than they could miss out on a very high price rise. However, the company is able to lessen large amounts of opportunity costs by using the SDC and the chance of missing out on a high price at the year of maturity may very well be counterbalanced by this fact.
Case Study: Victoria's Secret OVERVIEW Victoria's Secret, one of the world's most recognizable fashion brands, established itself in the Bay Area in the early 1970s. Originally owned by an ambitious Stanford graduate looking for a comfortable and high-end retailer to buy his wife lingerie, Roy Raymond opened the first store at Stanford Shopping Center. Styled after a Victorian boudoir, Raymond's success prompted him to open three other locations, a catalog business, and a corporate headquarters within a few years. His inability to balance finances with his creative vision, Roy Raymond fell into trouble and was forced to sell his company for the small sum of $1 million dollars to The Limited, an Ohio-based conglomerate owned by Les Wexner.
Finally, we must create a risk profile to find the optimal strategy. To find the optimal strategy we must multiply the probabilities of each path from the end points of the decision tree. As listed below, the most likely outcome will be a settlement amount at
1. Find Nash equilibrium in mixed strategies for the following game by using the method of best-response analysis. Draw a best-response diagram and show the equilibrium mixture on the diagram. Also indicate each player’s expected payoff in equilibrium.
Lululemon Athletica, Inc. (Lululemon) is renowned for its technical, high-quality yoga-inspired apparel for women. However, the company is growing beyond this niche market and is therefore altering its competitive strategy. Lululemon utilizes a broad differentiation strategy because its target market is broad and its product line is varied, it stresses product innovation, and its community-based marketing and retail experience sustain its differentiation from competitors.
When it comes to profit, Pick n Pays share price on the JSE has vaulted 29% within the last year. The franchises numbers for March showed a turnaround in margins from 17.4% last year up to 17.5%. Sales increased by 7.7% to R63.1 billion. Trading profit improved by 18.5% (and 34.4% on a comparable basis after three consecutive years of decline) (BDLive, 2014).
Hennes & Mauritz AB (H&M) is a well-known fashion retailing firm that sells fast-fashion clothing for women and youngsters. It is based in Stockholm, Sweden. As of 2013, H&M operates around 2,600 stores in over 55 countries and employed around 116,000 work forces.