FIN 480 RISK MANAGEMENT PROJECT ● ● You may print out this PDF, write your answers on the paper, scan it, convert it to PDF and SUBMIT FINAL PDF on

CANVAS. OR you can type your answers in any program as long as you can print out your answers in PDF form. Then SUBMIT FINAL PDF on CANVAS Futures and Futures Options Sources: Use your CME Group Login to access the Trading Simulator. You can access most markets from the tab at the top that starts with Equity Index. On the right-hand side of the menu you can switch between FUTURES and OPTIONS. FYI: If you need help there is a USER GUIDE at the right-hand bottom of the chart/option chain. Scenario: Amazon Inc is one of the largest companies in the world with many different lines of business and several different sources of revenue and expenses. The company is diversified with cash flows coming from its online marketplace to web services. There are, however, some big risks within the company's operations, revenues, and investment risks that could be hedged with futures and futures option contracts. You can use either futures or futures options, just make sure to detail why you would use one over the other. Also make sure to detail the derivative strategy used for each area. 1. Identify 3 major areas of the company where a hedging strategy might help the company lower the volatility of its cash flows with respect to its operational costs. Think about any of the major futures contracts and how the Chief Financial Officer might do to help hedge any cash flow risks. 2. Identify 2 major areas of the company where a hedging strategy might help the company lower the volatility of its cash flows with respect to its financial obligations and revenue. Think about any of the major futures contracts and how the Chief Financial Officer might do to help hedge any cash flow risks. 3. Summarize your findings and recommendations in an internal memo to the CEO. Make sure to detail how the hedges would work and the recommended contracts and derivative strategy. Include any pros and cons of the hedging strategies. Stock Options: Apple Computer The next 4 questions are about Apple Computer Stock (Symbol: AAPL). Sources: Yahoo Finance. Once you type in the security symbol you will see a menu starting with Summary. Towards the end of the menu you will see Options. Click on Options and an Option Chain menu will appear. In the left-hand corner, you can change the expiration date. Also, on the Show menu click on Straddle to list Puts and Calls side by side. This is a better way to look at Puts and Calls at the same Strike Price. FYI: The Strike Price in the middle that is YELLOW is the closest ATM Calls and Puts. Build the following option strategies for Apple Computer. Answer the following questions based on that your client is long 1000 Apple share of common stock. Make sure to give the exact option strike and expiration date. 1. If Apple Computer is expected to rise to a price high of $225 in the next 6 months, which option strategy would you use to capture the most potential gains for your client. Research a current stock option strategy to take advantage of the potential price appreciation. 2. If Apple Computer is expected to remain flat, meaning the price will likely stay the same or in a tight range, for the next 6 months. What is the best option strategy for your client? 3. Your client has been long Apple shares for over 5 years. The stock is reaching full value and the position represents a large part of her stock portfolio. Your client doesn't want to sell the stock due to high capital gains in her portfolio, especially in Apple stock. You don't expect Apple to go too much higher, but downside risks look high. What is the best option strategy for this client with respect to Apple? Recommend an option strategy. 4. Assume that next quarterly earnings are expected to be released next week for Apple. There has been a lot of uncertainty about Apple recent sales. Analysts are expecting a wide range of estimates for the stock from extremely disappointing to very optimistic. Given this scenario recommend an option strategy./n Student Note answers Should include bull spread, bear spread, butterfly spread, collar, option collar, straddle, The info for options strategy is from CH8 use wording and formulas from the modules on CME Need Handwritten Solutions Need to Give General answers