Reference no: EM132818136

A Discussion on Options Strategies

The SituationFunds include:

Capital Preservation Fund:

You are a portfolio manager and you manage several fund that make extensive use of options in combination with equities. The portfolios have different investor objectives and are subject to various constraints and expectations. Your job is to utilize the appropriate strategies to achieve these stated goals. Use the appropriate types of options and combinations to achieve your target return while staying true to the risk parameters of each portfolio.

The Capital Preservation Fund seeks to achieve a reasonable market-based return while limiting downside.  This fund is attractive to investors who are of retirement age and are dependent on accumulated wealth.

Aggressive Return Mutual Fund: The Aggressive Return Mutual Fund seeks capital gains by investing in higher risk assets.  Typical investors in this fund are young people at the start of their professional careers who seek to maximize their returns. 

Contrarian Fund: The Contrarian Fund tends to be for those investors with a negative view of the economy, therefore this fund seeks profits from downturns in the financial markets.

Restricted Period Fund- The Restricted Period Fund is for a specific group of investors, investors with ultra-high net worth. These investors are commonly executives for large corporations and a majority of their assets are tied up in their employer's stock. This means they hold very highly concentrated equity positions and often have restrictions on selling these positions.

Volatility-lite Fund: The Volatility-lite Fund seeks profit from low levels of volatility, as bets are that the markets will be stable and prices will not vary from their current levels. This fund will suffer should the markets experience high volatility.

Question:

How can you address the issue of illiquid option securities and still fulfill your return mandate as portfolio manager?