Futures & Options Report |
a) Our portfolio consists of five stocks, one put option and one futures contract. The five stocks we have are Exxon Mobil (XOM), Johnson & Johnson (JNJ), Google (GOOG), Ford (F), and Amazon (AMZN). These stocks are all traded on the NASDAQ stock market. We have purchased ten shares of each of the five stocks below. Below is a graph with shows when we purchased the stocks and how much it cost at that time.
| Stock P | Date | Time |
AMZN | $179.97 | 3/5/2012 | 1:28pm |
XOM | $86.67 | 3/5/2012 | 1:29pm |
GOOG | $614.70 | 3/5/2012 | 1:28pm |
F | $12.48 | 3/5/2012 | 1:29pm |
JNJ | $64.67 | 3/5/2012 | 1:28pm | ...view middle of the document...
On March 7, gold decreased $6 resulting in a loss of $600, making the value of our gold worth only $10,425. On March 8, gold decreased $5, resulting in a loss of $500, results in our gold futures to be valued at $9,925. On March 9, gold decreased $8 resulting in a loss of $800 and making our gold to be valued at $9,125. On March 10, gold increased $3, gaining a profit of $300, increased our futures value of gold to $9,425. On March 11, gold dropped $6, resulting in a loss of $600. Therefore our gold futures are $8,825. On March 12, gold decreased $12 causing a loss of $1,200 resulting in the value of our gold to be $7625. On March 13, gold increased by $8, resulting in an $800 gain and the futures to be valued at $8,425. On March 14, gold decreased $4, resulting in a loss of $400 and the resulting value is $8,025. On March 15, gold decreased $6, resulting in a loss $600 and the overall gold value to drop $7,425. This results in a margin call, causing us to borrow $2,700 from the bank in order to bring our gold back to the initial value of $10,125. On March 16, gold increased $5, resulting in a gain of $500, making the overall value of the gold futures $7,925. $7,925 subtracted from our initial value results in a $2,200 loss overall in our gold option.
In our portfolio, we had a put option for Procter & Gamble. Put option means that we are buying the right to sell the option at the strike price a later time. Without the premium, when buying a put option; if the stock price is lower than the strike price there would be a profit. At the time when we bought Procter & Gamble put option, the strike price is $67.50 and the ask price is $117. At the end, the stock price is $67.25, market price $67.25 is less than the strike price (which is the price that we are selling for), therefore we made a profit of 25 cents on each share. One contract has 100 shares, so we would take 100 and multiplying by 25 cents per share which equals to $25. Since we had to pay $117 premium, we would end up having a loss of $92 ($25-$117).
c) There are many market forces that can affect our product, especially gold. One factor that affects gold is the debt that affects western government and the abuse of paper currency. When central banks print more money to pay the bills and try to stimulate the economy, it devalues the dollar, resulting in higher prices for gold. (Stanczyk)
Gold also performs very well during times of financial crisis. Gold can be considered an ideal hedge against inflation due to the fact that it can hold its value.
There is a term called the gold slingshot affect. Basically it means you can increase your value in investing in gold without ever touching the precious metal itself by investing in the gold mining stocks. Let’s say gold is worth $1,000 and it increase $100 to $1,100. That same $100 dollars is also increased for a gold mining stock let say is worth $500 to $600 dollars resulting in a 20% increase in value. (Clark)