VIETNAM NATIONAL UNIVERSITY HCMC

INTERNATIONAL UNIVERSITY
SCHOOL OF BUSINESS

FINAL REPORT

COURSE:
COURSE: DERIVATIVES
DERIVATIVESAND
AND RISK
RISK MANAGEMENT
MANAGEMENT

INSTRUCTOR:
INSTRUCTOR: VO
VO XUAN
XUAN HONG
HONG

MEMBERS
MEMBERS GROUP
GROUP ::

TRẦN
TRẦN THỤY
THỤYYẾN
YẾN THU
THU -- BAFNIU17051
BAFNIU17051

NGUYỄN
NGUYỄN VÕ
VÕ HÀ
HÀ PHƯƠNG
PHƯƠNG -- BAFBIU17032
BAFBIU17032

NGUYỄN
NGUYỄN BẢO
BẢO NGỌC
NGỌC -- BAFNIU17016
BAFNIU17016

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 Contents
I. INVESTMENT POLICY STATEMENT............................................................................2
1. INVESTMENT OBJECTIVES.................................................................................................2
2. CONSTRAINTS....................................................................................................................2
3. ASSET ALLOCATION..........................................................................................................3
4. MANAGEMENT STRATEGY.................................................................................................3
5. MONITORING & REVIEW...................................................................................................3
6. BALANCING – REBALANCING............................................................................................3
II. FUNDAMENTAL ANALYSIS......................................................................................4
1. MACRO ECONOMY............................................................................................................4
2. INDUSTRY ANALYSIS.........................................................................................................5
III. STOCK PICKING..........................................................................................................6
IV. REFERENCES:................................................................................................................8

I. INVESTMENT POLICY STATEMENT

Target customer: Risk-averse investors ( Middle-class working people)
Age: 40-60 years old
Budget: 100 millions dollar
Time horizon: 3 weeks
Investment objective: Income generation
Constraints: Short-term investment
Overall risk level: moderate in relative to America stock market
Asset allocation: 100% invested in stocks listed on NASDAQ

1. Investment Objectives
This report is based on common stocks and option contracts investments of Nasdaq-listed
American companies to expand funding and moderate return with relatively low-risk
investment strategies. The target segment is 40-60 years old investors, who have a relatively
stable income, expect reasonable profits, and accept moderate risks. The risk factors in this
investment project have been considered to minimize the risks incurred. The total initial
investment for this strategy is 100 million USD
- Return:
The goal of this investment strategy is to generate medium-term income. The expected return
is about 20% - 25% a year, this is the rate that is considered suitable for medium-term
investment. Meeting the need to create a higher income than income from deposits at the
banks today.
- Risk:
The investor’s segment for this portfolio fund is focused on middle-aged people aged 40 to
60. These are subjects with stable and relatively high incomes. Target used for this income
stream to cover personal and family life. Therefore, the medium-term generation’s portfolio

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has a moderate level of risk that is suitable for the investment needs and experience of
investors.

2. Constraints
Besides the two factors are risk and return, we need to consider other constraints affecting
the investment plan.
Liquidity need
The investment strategy is also influenced by restrictions, in addition to return and risk
targets. Liquidity requirements are usually taken into consideration first. In particular, this
fund is intended for investors who have a modest financial position but want to make a higher
profit relative to the bank's return. In this manner, they do not require a high return but it
guarantees liquidity for them. Furthermore, in this project, short- and long-term plans should
be considered. Investors may need money to cater to their lifestyle needs such as buying real
estate, buying a car, getting married, or traveling. If any opportunities arise, it is appropriate
to update and reexamine the arrangement explanation and financial plans accordingly.
Time horizon
Depending on the time horizon, investors will confront distinct investment risk levels. The
longer the time horizon is the higher the risk speculators endure. To this speculation arrange,
the time period for this investment strategy is set in the short term, with a time outline of 3
week.

3. Asset Allocation
Asset allocation is a very significant step move that leads to portfolio efficiency. Our group
agreed to invest in stocks and options, not bonds. The rationale for this decision is that while
in spite of the fact that bonds have a few focal points such as soundness in income and less
risk than stocks, it still has a few taking after restrictions:
o The listing scale (actual size per issue of a bond) is little and the bond sorts are still
restricted. Furthermore, government bonds rule the market and there are not numerous bond
issuers within the market, so investors are less likely to select.
o Bonds are less liquid than stocks. In developed countries, the corporate bond market is
also smaller than the corporate stock market (in the US the corporate bond market is only
about a fifth of the company's stock market), so it is difficult in some situations if we need to
rapidly transfer bonds into money.

4. Management Strategy
Our management approach is a passive strategy. This strategy is simply understood as a
strategy to buy and hold. We will try to diversify our portfolio to match our portfolio with the
Nasdaq - index as accurately as possible. We use this strategy because this investment
strategy is often easier to execute than an active strategy that requires constant research and
adjustment. Therefore, save more time and cost of searching, including financial income tax.
In addition, this strategy is promoted by the efficient market theory, the market price of stocks
is always reasonable, it reflects quickly all information related to the stock.

5. Monitoring & Review

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 We will track and monitor the portfolio's investment performance relative to the Nasdaq –
index (Follow a passive strategy). Each quarter, we will report and provide information to
investors. The investment process will be checked and adjusted to ensure the investment
target and not exceed the risks required by investors.

6. Balancing – Rebalancing
On option expiry dates, we will rebalance the portfolio.

II. FUNDAMENTAL ANALYSIS

1. Macro Economy
As the pandemic exposes the global economy to a powerful recessionary shock not seen since
the Great Depression of 1930, 2020 has become a year in world history. At the end of June
2020, international organizations and financial institutions simultaneously declared that global
economic growth would slow down significantly by 2020. By mid-December, though, when
most economies rebooted after the blockade. Despite the COVID-19 epidemic, more positive
signs have been shown in the forecast for world economic growth. The Organization for
Economic Cooperation and Development argues that, following the relaxation of strict
constraints and business re-opening, the global economy tends to recover.
Accordingly, this organization forecasts that world GDP will fall by 4.2% in 2020, adjusted
for an increase of 0.3 percentage points compared to the September 2020 forecast. Some other
organizations, such as the International Monetary Fund (IMF) and the International Credit
Rating Organization Fitch Ratings (FR), have all adjusted to increase the global growth
forecast for 2020 compared to previous forecasts. Specifically, IMF and FR forecast world
GDP in 2020 at -4.4%, and -3.7%, up 0.5 and 0.7 percentage points. According to the Asian
Development Bank ADB, China's growth is forecast to reach 2.1%, the United States
decreases by -3.5%, Eurozone decreases by 7.4%, Japan decreases by 5.4%, Indonesia
decreases by 2.2%, Malaysia decreases by 6.0%, Thailand decreases by 7.8%, the Philippines
decreases by 8.5%, and Singapore decreased by 6.2%.

In the last 2 months of 2020, however, the world economy has improved considerably
compared to the previous months, specifically:
- Trade has recovered but remains very fragile.
Global trade has changed, but not evenly, according to WB. Recent data indicates that global
trade's recovery rate is slowing down. By reducing trade barriers, the Regional
Comprehensive Economic Partnership (RCEP) signed by 15 Asia-Pacific countries on
November 15 is expected to fuel development in the coming years.
- Global financial conditions raise trust in investors.
Financial conditions continue to loosen, thereby supplying psychological relief and stopping
the financial sector from further amplifying the COVID-19 shock. Latest financial programs,
such as the 750 billion euro pandemic recovery fund of the European Union, a set of
multinational bailout measures, include cash and in-kind provision to impacted industries and
families, pay incentives to sustain jobs, an extension of unemployment benefits, and tax
deferrals, etc. help to develop investor psychology. The provision of credit to a wide variety
of borrowers is assisted by central bank operations in developed economies. The US Federal

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Reserve has also proposed improvements to its monetary policy plan, moving over time to a
flexible average inflation target (2%).
- Global stock markets have soared in November and December thanks to optimistic
reports about the efficacy of the COVID-19 vaccine.
The World Bank report shows that the revival of investment flows into emerging and
developed economies. Most stock markets in these countries rallied in November in many
countries, but they are still below the pre-pandemic level.

For the US, the Asian Development Bank (ADB) has reported that the economy has improved
spectacularly in the third quarter of 2020, although infections with COVID-19 have continued
to rise sharply. Compared with the last quarter, GDP growth increased by 33.1 percent. The
economic growth was primarily due to the rapid recovery of consumption and private
investment. Decreased government consumption. Owing to a rise in both goods and services
such as healthcare, dining, and lodging, private consumption in the third quarter rose by 40.7
percent relative to the second quarter, but still down 2.9 percent over the same time last year.
Retail sales recovered in May 2020, and remained steady in the third quarter, thanks to the
normalization of economic activities and the help of major stimulus packages. Compared to
the first quarter, investment rose the most, up 83 percent, but still down 3.8 percent over the
same time last year. The drivers of recovery are an investment in infrastructure, increased
purchases of machinery, and retail inventory. Industrial output has only improved since June,
but as the manufacturing index hit 59.3 in October, the Purchasing Managers' Index (PMI)
recovered quickly. Although the labor market continued to improve but recovered more
slowly, unemployment fell from a peak of 14.7% in April to 6.9% in October 2020. Thanks to
economic recovery in the third quarter, the US GDP forecast is adjusted to increase from -
5.3% to -3.5% in 2020 and to grow by 4.2% in 2021, up 0.2 percentage points compared to
the forecast made in September 2020.
According to the OECD, high volatility, increasing unemployment, and pandemic outbreaks
are the reasons that hamper the pace of US economic recovery, especially in the short term.
An additional fiscal stimulus package will, however, benefit household income and spending
in early 2021, and an adequate monetary policy will further improve economic activity, in
particular in the housing sector. US GDP growth is therefore expected to hit 3.2% and 3.5%
in 2021 and 2022 after dropping by 3.7% in 2020.

2. Industry Analysis
Technology Industry
The global technology industry has taken a slight step backward in total revenue by 2020.
Nevertheless, the most influential tech firms in America still are the backbone of the
economic development of the nation and a crucial component of global power. They are also
one of the key levers for high-paying potential employment in the United States, and although
some conventional industries are threatened, they also provide hope in the United States and
around the world. It would be useful and fascinating to apply their creative and revolutionary
business approach to human life.
Technology industries include companies selling goods and services in industries related to
electronics, software, computers, artificial intelligence, and other information technology (IT).

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 This sector includes companies with the largest market capitalization in the world such as
Apple Inc. (AAPL), Microsoft Corp (MSFT), and Amazon.com Inc. (AMZN).
Going forward, IDC estimates that by 2021, the tech market is on track to cross $5 trillion. It
will reflect a 4.2% growth if this number holds. Looking further into the future, IDC expects
to continue this trend, forecasting the industry's compound annual growth rate (CAGR) of 5%
by 2024.
The United States is the world's largest technology market, accounting for 33% of the total, or
nearly $1.6 trillion by 2021. In the United States, a large share of economic operation is
accounted for by the technology industry. CompTIA's Cyberstates study shows that, as a
percentage of gross domestic product, the economic influence of the US tech industry exceeds
the impact of most other sectors, including prominent areas such as retail, manufacturing, and
transportation.
The traditional hardware, software, and service categories comprise 56% of the global total.
The other core industry group, telecommunications services, accounts for 26%. The rest is
made up of various new technologies that do not fit into one of the traditional groups or span
multiple categories.
A significant proportion of US economic activity has long been held by the technology
industry. During the pandemic, the technology industry is still growing rapidly and will likely
continue to grow with trends in 2021:
- Video conferencing and remote work.
- Teaching online and studying online.
- Increasing 5G infrastructure development, new applications, and utilities.
- The use of technology in virtual reality (VR) and augmented reality (AR) is growing.

III. STOCK PICKING

Stocks Expectation Strategy Allocation Proportion
MSFT UPTREND Bull Put 24,660,000 0.25
AMZN SIDEWAY Long Call Butterfly 37,340,000 0.37
AAPL DOWNTREND Bear Call 38,000,000 0.38

Figure 1: Stock’s company and investment strategies

Based on the above analysis, we decided to use options investing strategies in three Nasdaq
listed companies: Apple Inc (AAPL), Microsoft Corp (MSFT), Amazon.Com Inc (AMZN ),
all of which mature on January 8, 2021. The allocation of invested capital and the
implementation plan of the investment we decided as follows:
Stocks No. of contract Position Options No. of option Strike Premium
Price
MSFT 180, Long Put 1 210 1.37
000
180, Short Put 1 220 8.02

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 000
AMZN 4, Long Call 1 3095 58.4
063
4, Short Call 2 3120 41.7
063
4, Long Call 1 3135 33.5
063
AAPL 250, Short Call 1 122 4.94
000
250, Long Call 1 127 1.52
000

Figure 2: The strategies details

Stock Strike Premiu Close Sprea

Gain/Loss
s Price m Net Premium Price d Net Spread

MSF 210 1.37 119,700, 212.25 0 (2,32 119,69

T 000.00 5.00) 7,675.00
220 8.02 212.25 -7.75
3,
3,095 58.4 138.38 43.38
AMZ (3,453, 3, 4,063,00 6
N 3,120 41.7 550.00) 138.38 -36.76 0.00 09,450.00
3,
3,135 33.5 138.38 3.38

AAP 122 4.94 85,500, 126.60 -4.6 (115,000,000. (29,50

L 000.00 00) 0,000.00)
127 1.52 126.60 0
RETURN 90.8081%

Figure 3: Total Gain and Gain and Loss in each strategies

At the maturity on January 8,2021, we have a gain and commendation as following:

In the uptrend market, we choose the Bull Put strategy, which although limits the amount of
money that can be earned, but the great risks that can happen in the future will also be limited.
The company we chose for this strategy is Microsoft Corp (MSFT) because the premium gap
between strike price lower and higher is high, so the greater the profit we make if we succeed.
We decide to long the lower strike with a premium is $1.37 and short the higher strike at
$8.02 in premium with 180,000 contracts. Total initial investment is $24,660,000. At the
$212.25 of stock’s closed price, the profit earned through trading is $ 119,697,675. This is
quite a high return compared to the initial capital of nearly 25 million dollars.
Next, we exercise an option on Amazon.Com Inc (AMZN) by using the Long Call Butterfly
strategy, which will spread prices up and down prices with a fixed risk and expected return. It

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 is suitable for the Sideway market and can limit the investor's loss, so we still get a profit
from this transaction by long 2 calls at two different prices of $3095 and $3135 with the
premium of $58.4 and $33.5, respectively. Then we immediately short 2 put with a premium
of 41.7. The total return for this investment of over 37 million dollars is $609,450 with 4,063
contracts. Although it's not high, these income levels are considered stable.
Finally is Apple Inc (AAPL) with Bear Call strategy when the market is going down. This
strategy costs $29,500,000 when the stock price at maturity was 126.6 for 250,000 contracts.
This transaction has caused a high loss but the risk is still acceptable.
With the desire to receive a stable income but still limit losses, the target for the selected
strategies as above ensure that investors no matter what the stock price on the maturity date is,
they will only suffer loss at a foreseen level. Through 3 strategies from the three different
companies, the total profit earned was $ 90,807,125. This is high compared to the initial
estimate with a return of 90.8% compared to principal investment. It can be seen that this is a
worthwhile strategy for investors who prefer to make profits but are afraid of high risks.

IV. REFERENCES:
- https://thongkehaiphong.gov.vn/kinh-te-xa-hoi-20/tong-quan-tinh-hinh-kinh-te-the-
gioi-nam-2020-256.html
- https://www.comptia.org/content/research/it-industry-trends-analysis
- https://www.nasdaq.com/market-activity/stocks/msft
- https://www.nasdaq.com/market-activity/stocks/aapl
- https://www.nasdaq.com/market-activity/stocks/aapl

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