FIN 376: Option Spreads Trading Assignment

Trade the following stock option spreads.  You can either long or short each spread.  Record in Excel what contracts you traded, the prices, whether you bought/sold them, and ultimately whether you are long/short the underlying stock or the stock's volatility.  Also, calculate your max gain, max loss, and breakeven underlying price.  Upload this to dropbox.  We'll close out of the trades after a week or so and record our profit/loss.

Make sure you use a different underlying stock for each spread trade.  Lastly, pay attention to the bid/ask (and the volume of trading) in your options. You generally don't want to trade very illiquid options.

1.  Trade a butterfly spread.

2.  Trade one of the following: bull call, bear call, bull put, or bear put spread.

3.  Trade a straddle.

4.  Trade a covered call.

5.  Trade a protective put.

Interactive Graphic for new Working Paper: 'Fake News'

My coauthor (William Pratt) and I will post our new working paper 'Fake News' here and to SSRN shortly.  It is an analysis of how false information of a takeover of Twitter on July 14 2015 was incorporated into market (stock and option) prices.

To accompany the paper, I created an interactive graphic to help understand the realtionship between Twitter's stock price and options implied volatility.  I am posting the graphic HERE, and linking to it in the journal article.  Take a look, and feedback is always welcome.

FIN 376: 2 Assignments: Trading 1 and IBrokers Intro

See the IBrokers assignment here:  http://complete-markets.com/wp-content/uploads/2014/09/IB_IBrokers_Intro.html

Trading assignment:

In groups of 2 or 3 you should complete the following trades and questions.  During class show me you have completed your trades using the Account Management  section of your IB account. You will answer the questions at the same time you show me your trades.

Trades:
1.  Buy 327 shares of RHT at the market.
2.  Short 41 shares of AAPL at the market.
3.  Use a limit order to buy 500 shares of ECA at the lowest price you can (while still executing the trade).  The group who buys ECA at the lowest price will get a bonus.
4.  Use a limit order to sell short 80 shares of GS at the highest price you can (while still executing the trade).  The group who shorts GS at the highest price will get a bonus.
5.  Place a stop loss order on your RHT shares.  Place the order such that it is unlikely to be executed - so I can see it in your pending trades.
6.  Place a stop loss order on your AAPL shares.  Place the order such that it is unlikely to be executed - so I can see it in your pending trades.

Questions:
1.  How large, on average, is the bid/ask spread on EGAS.  If you buy and sell $10,000 worth of EGAS how much will the total transactions costs be (commissions and the spread paid to the market maker)?
2.  How large, on average, is the bid/ask spread on NEE.  If you buy and sell $10,000 worth of NEE how much will the total transactions costs be (commissions and the spread paid to the market maker)?
3.  How many shares would you have to buy to increase EGAS’s ask price by $0.05?
4.  How many shares would you have to buy to increase NEE’s ask price by $0.05?