Suppose Your Wealthy Aunt Minnie Has Asked You to Manage

question 81

Essay

Suppose your wealthy Aunt Minnie has asked you to manage her large stock portfolio.You would like to use options to increase her total return and also reduce her risks.Describe the types of options you would buy or sell,as well as your rationale,given the following circumstances:
∙ Aunt Minnie owns 10,000 shares of a large oil company common stock.You believe the stock is overpriced,but she won't let you sell any shares because her late husband told her to never,ever sell any.How do you protect her from what you believe is an impending price decline?
∙ Your analysis suggests that a technology stock is poised for a large price increase within the next year.Aunt Minnie won't agree to spend the dollars required to obtain shares but has consented to allow you to spend some money on options but only because she trusts you.You don't want to disappoint her.What should you do?

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Definitions:

Murdered

The unlawful premeditated killing of one human being by another.

Collect Proceeds

To receive payment or benefits, typically from an insurance policy, investment, or similar financial sources.

Insurance Policy

A contract between an insurer and a policyholder that defines the terms of insurance coverage, including the obligations, liabilities, and benefits.

Fraud

The wrongful or criminal deception intended to result in financial or personal gain.