Trading Project

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8th December 2016
Stock Exchange Volatility & Trade Choice Strategies:
Introduction
The trade options derivative allows trader/investor to hedge upwards and downwards of the profit and loss index on return on capital investment. Speculators further always have a positive mind on their investment and anticipate for profits from the market leverage. This either gives investors profits or losses, in the long run, depending on their analysis on the option trade. The trade options walk through of sophisticated options in deriving the appropriate choice of investment. Derivative valuation, therefore, is an instrument whose variable depend on an underlying asset, index, or reference rate in a contractual agreement. The property underlying are referred to equity, forex, commodity where the financial derivative is forwards, swaps, options, and futures. The concept of forward contract is an agreed value of stock between the buyer and the seller of the underlying asset. One of the support agreements of a forward contract is the willingness of another of taking a reverse position. A future contract is standardized trade exchange with no counterparty risk and much of liquid. The standardization is on the quality and quantity of the underlying terms of the contract.
The international trade policies across continents have different agreement on the stock exchange investment. The Chicago Board Options Exchange volatility index is constructed at a wide range of market risk referred to the investor fear gauge.

The CBOE creates various market values of products whereby investors speculate the future expectation of the market volatility (Ammann, Manuel et al. 99-101). However, under several circumstances, the market expectations have uncertainty corresponding to the investor speculation. In this case, the investor will need to combine multiple options to derive a better aggregate expectation on the market value of stock.
Speculators usually have a broad spectrum of market research in achieving profit and return on capital investment depending on the volatility of the market stock of the company choice. The use of expertise in providing relevant cases on the portfolio to choose has a greater advantage on profits than loss occurrence. The expectations on stock capital portfolio help the speculator mitigate the favorable environment of risk. The risk environment takes the economic, political and social factors on getting into the stock market. The fluctuation of the market stock often depends on the political stability of a country alongside the economic set-up of the country. A stable economy supports better trading activities and better companies’ profitability index operations.
The transformational innovations in the world on globalization entail the international standards framework that guides the trade activities and minimizes the adverse effects of equilibrium of the trade in the countries under the trade agreement. The Chicago Board Options Exchange has key index measures of the market expectations and the volatility stock option price. The speculation framework expresses future volatility options and indexes to investors and the potential diversification on the market strategies. Stock exchange trade helps companies exploit potential capital investment and gain from the public capital investment. The Chicago Board Options Exchange thus has a series of option trading strategies that entails investment strategies, risk analysis and the volatility of the capital investment (as qtd. in Bennet, Ebenezer and Murugesan 127). Therefore, the investment overview on a stock exchange involves understanding the downsides of trading alongside the risk involved. In this aspect, the online program simulation often has mixed variable of buying or selling of market stock. The option strategy entails the exposure of opportunities and risks elimination process through the combination of simultaneous buying and selling of choices.
The idea of volatility index of the stock market analysis has an uncertain market outcome on the VIX index of the calculated in the real time. The stock value is thus evaluated theoretically through the weighted blend pricing of options of S&P 500 index. Therefore, the estimation of volatility index (VIX) requires an imposed structure of underlying forces of the free model CBOE index estimator. Under several situations, determining undervalue or overvalue of the VIX volatility when the market return is expected to be negatively or positively skewed alternately develops general volatile index (GVIX) possessing no fusion (Cheung, William M. et al 580). However, the GVIX understates the actual value of volatility index hence giving an error on estimation. The VIX and the GVIX experience difficulty in predicting the future volatility of the market stock. It gives rise to a broad scope of market analysis before investing in the stock exchange. The sophisticated composition of volatility models forecasting requires theoretical attempts to uncover hidden principles. Thus, this involves the risk and exposure in eliminating the trading risk to allow potential gains on the stock market investment. The study is to justify the potential strategies for identifying and forecasting the volatility of the stock price. Moreover, the study aims at adjusting the theoretical analysis on the VIX choice and the market trend of stock value.
The case projection analysis is done in two company of close relation however with a different market share from CBOE listing. Our first case analysis is the GOOGLE Company with a significant market outcome from a series of years. The company has increasing been beneficial to investors over the past 12 years in the market share. However, the speculators have captured negative value from the market share in some instances. The real time share market of the company has recorded on weekly basis of analysis. The investor first-week bid quotation is at $780 with a net change of positive value $5.23 and a lower change of 0.47%. The second company choice is the Bank of America Corporation (BAC) which records 1.68% increase in the market share, the bid quotation in this enterprise is at an aggregate value of $22. Thirdly is the Microsoft Corporation which has an average bid price of $61 with a lower change of $0.36 and a net change loss of 0.59%.
Symbol Low High Bid Exchange Valuation Quantity Outcome Period
GOOG 776.17 795.17 780 NASDAQ 5.23 780 Profit Week 1
BAC 22.95 23.00 22.57 NYSE 0.38 22 Profit Week 1
MSFT 60.65 61.01 61 NASDAQ -0.36 60 Loss Week 1
Further analysis before choosing the stock market is set below;
(i)Trade options
Trading options are the detailed explanations of the important option with overview advantages of the investment strategies to an investor. Thus, the advisable terms of the market trend on stock volatility are to understand the challenges and loopholes on the market risk. The risk factor includes the direct and indirect risk analysis on studying the potential loss, complexity, liquidity, cost and the time decay (Bennet, Ebenezer and Murugesan 133; Pelsser, Antoon and Mitja 40-44). The fundamental reasons for trade options depend on the flexibility and versatility of wide range of strategies. The trade option is, therefore, important in limiting the risk of taking upfront costs position of the stock market index (Cheung, William et al. 568) However, the deep consideration of commerce options is usually a high risk and some circumstances attributed to loss. It brings in the vast scope of choices;
(ii) Complexity Trade Option
The complex nature of risk involves the complicated measures in choosing the appropriate value of the investment and the identification of more information before investment through learning the trends of the market stock. Usually, investors with less information make mistakes and misappropriate the buying and selling of stock due to the lack of proper analysis of the complexity of the market stock (Pelsser, Antoon and Mitja 40). The knowledge on the market stock is always important in getting the right value of the volatility of the market indexes.
(iii) Liquidity Options
This involves the large pooling stock with less analysis on the right prices on the stock value. The volatility indexes use the assumption of certainty in the buy and selling. This option identifies the most popular choices in the market due to the less mainstream options of possible risks (Pelsser, Antoon and Mitja 40). The advantage part of this opportunity is the increasing number of investors on the liquidity of the stock exchange. Moreover, liquidity entails the low volume trading whereby the market makers ensure particular level exchange of stock.
(iii) Cost Trade Option
Cost Trade Option has a close link to the liquidity option whereby the difference comes in on price quotation on the exchange with the asking price and bid price. For instance, the asking price is the payment for buying stock and the bid price is the amount received by the seller. Usually, the asking price has a higher value than the bid price creating the difference known as the spread. The spread is the indirect cost incurred and is marked as the potentially significant risk (Pelsser, Antoon and Mitja 40). It has an impact on the direct cost influencing the cost where the brokers charge commission higher than the price of stock.
(iv) Time Decay
This an avoidable form of risk used to speculate the value of stock typically involves cost analysis over time. As time goes by, the value of stock index decreases due to the little investment. The time decay has an adverse impact on the capital investment hence the proper timing of stock entails that early stage of the market trend (Pelsser, Antoon and Mitja 44).
(v) Risk Strategies
Under the risk strategies, the investor needs to check on the operational goals and the variables on buying and selling differences. The buying and selling exposure is the potential risk exposure on strike prices of stock (Pelsser, Antoon and Mitja 44). Therefore, to gain the underlying options on opportunities, the invest needs to consider the bullish strategies, bearish or the neutral strategy. These strategies have the initial classification on determining the volatility indexes of the stock market.
(vi)Bullish Strategies
The bullish strategy is executed in the options trade whereby the underlying stock is moving upwards. This approach involves the use of time decay in determining the best time of capital investment in a particular stock. This method also gives the investor access to speculations on how high the risk and the time framework of the risk rally (Pelsser, Antoon and Mitja 44). Thus, the trader will determine the appropriate time frame to buy and sell stock. Consequently, this trade option entails the market price estimation and the utilization of the bull spread between the buying and selling of stock. The bullish usually has ac target price in maximizing the profit cap under limited potentials of up and down.
(vii) Bearish Strategy
The bearish strategy is employed when the investor expects the stock price to move downwards of the underlying price. In this case, the trader will determine the stock price and the time frame relation and access the possible period of decline of the stock price (Pelsser, Antoon and Mitja 44). Selling bearish option is the way out to avoid the margin accountability of the capital share. The reasonable bearish option set the price and establishes the expected decline to reduce the price. The trader thus chooses the underlying downward trend of stock prices and enjoy unlimited price with limited risk.
(viii) Neutral Strategy
This strategy in case employs the options trader to have less information concerning the stock price will rise or fall. Further, this depends on the expected volatility of the underlying stock price. It is also known as the non-directional strategy since the potential profit does not depend on the underlying stock on whether it will move up or down.
These strategies help investor on maintaining the share capital or choosing alternative companies with the better yield on the market profit. In the second week of operations, GOOGLE Company records a net of change of $3.70. The BAC net change equates to $0.38 due to an increased value by 1.68%. The MSFT Company has a negative net change of $0.36 due to the negative percentage value of 0.59%.
Symbol Low High Bid Exchange Valuation Quantity Outcome Period
GOOG 783.7 795.17 780 NASDAQ 3.70 780 Profit Week 2
BAC 22.38 23.00 22 NYSE 0.38 22 Profit Week 2
MSFT 60.65 61.01 61 NASDAQ -0.36 60 Loss Week 2
Share choice and Strategies Overview
The Bank of America and Microsoft Corporation have lower bids this was due to the inability of the company to sustain better profit margin over the course of its operations. Therefore, the two companies have a greater risk on returns hence the investor needs to look for a better alternative to the share capital. The second week clearly indicates the trend of market portfolio and requires re-strategizing on the trade options to avoid loss occurrence. The use of strategies analyzed earlier will guide the speculator transform his/her desirable goals in the business. The risk awareness and the trade options help the trader determine the potential investment vehicle using the relevant facts of the upward or downward move of the underlying stock price. Moreover, the operator will identify the pitfall of the stock market through these strategies and options and use it determining the downsides. These overview strategies are an important factor in interpreting the movement between the seller and the buyer (Cheung, William et al. 569). For the case of GOOGLE Company, the high bid indicates a better valuation of the company. The significant profit on investment has a greater influence to the investor. The profit margin with a greater profit percentage gives the investor anticipates greater benefits in the future. The high volatility of underlying stock makes the trade option have a greater value due to the higher probability of time decay and the vice versa. The stock valuation has a more meaningful analysis of the technical evaluation of future market price.
The stock valuation basis aims at setting estimate intrinsic value of the stock price based on the prediction of the future cash flow of the company’s share capital. The profound analysis is the market criteria entail the intrinsic and cash flow/profit predictions. Moreover, the underlying supply of stock and demand for the stock is an influencing factor in determining the price and value of the market share. The stock valuation methodology entails two ways of calculating the stock future assessment. First, the cash flow analysis of the underlying earnings is the use of ratio on the standing price and the earnings ratio. This further uses the statistical history rate and aims at measuring the attributes of stock (Macey-Dare and Rupert .nd.). Consequently, this stock valuation methodology typically is confident in determining short-term returns on investment due to the historical look on the share capital. The second form of evaluation is the supply-demand basis whereby the high demand for stock the price shifts higher and vice versa on offer.
This assumption makes a particular idea on GOOGLE, BAC, and MSFT stocks to have different earning growth due to the operational difference and the business usefulness in the market. Therefore, the comparisons of stock of various companies can yield a better definition of price earning of the stock exchange. The estimation of compounding value needs to be analyzed using several companies with almost the same stock value in the market and the dividend payout (Pelsser Antoon and Mitja 46).
Conclusion
In conclusion, these stock strategies and trade option serve in protecting the traders’ interest in the market. The Chicago Board Options Exchange has a greater influence in the stock market valuation of the investment. The online buy and sell off stock has transformed the sector into a flexible system to investor hence attracting more investor. Nevertheless, the trade options also have a greater influence to the trader in determining the possible course of action on the volatility access of share capital and where to impact on an investment (Pelsser Antoon and Mitja 56). The risk factors are important in analyzing the upside or downside of a share. The risk evaluation also gives the potential trade market and creates awareness of the possibilities for the future growth of the market stock (Cheung, William et al. 572). The economists rather give conventional breakdowns on the trade option analysis and provide the necessary stability on the liquidity investment to traders. The standard analysis further provides the compatible considerable on business continuity and the loopholes on stable markets. The investor uses this thorough consideration in establishing significance in the share trade. These set of recommendation will guide the trader on gaining from the stock exchange. The CBOE policies also keep on changing. Hence the operator also needs to address the significant changes to influence decision on share capital. Nonetheless, the investor needs to look at the technological shift in the calculating the estimates and future predictions

Work cited
Ammann, Manuel et al. “Feasible Momentum Strategies In The US Stock Market.” SSRN Electronic Journal, Elsevier BV, doi:10.2139/ssrn.1694700.
Bennet, Ebenezer and Murugesan Selvam. “Investors’ Perception Of The Factors Influencing The Stock Selection Decision.” SSRN Electronic Journal, Elsevier BV, doi:10.2139/ssrn.1793822.
Cheung, William M. et al. “Exchange-Traded Barrier Option And VPIN: Evidence From Hong Kong.” Journal Of Futures Markets, vol 35, no. 6, 2015, pp. 561-581. Wiley-Blackwell, doi:10.1002/fut.21719.
Macey-Dare, Rupert. “Target Zone Exchange Rate Option Pricing.” SSRN Electronic Journal, Elsevier BV, doi:10.2139/ssrn.985523.
Pelsser, Antoon and Mitja Stadje. “TIME-CONSISTENT AND MARKET-CONSISTENT EVALUATIONS.” Mathematical Finance, vol 24, no. 1, 2013, pp. 25-65. Wiley-Blackwell, doi:10.1111/mafi.12026.