Blue-Moon-Blueberry Case Study

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For example, a publicly traded fast food chain is supposed to come out with a new smoothie flavor, Blue-Moon-Blueberry, in June, six months away. While the current price of the fast food chain’s stock, is priced at $75 per share, Zachary (an investor who does not wish to purchase the shares outright but would rather potentially profit from short term movements) is confident the company’s stock price will soar well past $80 before the debut of the new Blue-Moon-Berry smoothie, therefore Zachary buys one June call options contract (representing 100 shares) with an $80 strike price for $2.00 per option, for a total premium paid of $200.00. Not including the cost of commissions, Zachary would lose money if the stock traded below $82.00 through option expiration (the strike price of $80.00 + the premium of $2.00 =$82.00 of cost to Zachary). Likewise, if you factor out commissions, Zachary would break even if he were to exercise his option contract at $82.00. Finally, factoring out…show more content…
When the market or a particular sector is appreciating or trending upward, ETFs that track the market or a particular sector tend to perform well for a very competitive cost. However, in market corrections and downtrends, ETFs will decline in tandem with the market, with no risk management or strategy. Basically ETFs may rise and fall with the market or sector they track like a jellyfish rises and falls with the waves in the ocean, with little or no control of its destiny. Simply put - exchange traded funds are subject to risks similar to those of stocks, bonds, or commodities, depending upon the index or sector they track. Investment returns may fluctuate and are subject to market volatility, so that an investor's shares, when redeemed or sold, may be worth more or less than their original

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