Assume you are at an investment firm and your CIO asks you to choose the stock shown below to invest clients funds. CLEARLY describe your investment strategy as to how you would invest $1M at t=0.2 with no future knowledge of the stock price shown in the following chart. Final pay off will take place at t=1.

a.Preserve the principal only

b.Produce mild gains (10% - 20%)

c.Speculate the future (market direction) with the goal to make 2X.

Assume call/put strike: 5% of stock price per share

For each question, define your purchase/sell criteria

110 100 90 80 70 Stock Price S(t) 60 50 40 30 20 0 0.2 0.4 0.6 0.8 1 time t 1 110 100 90 80 70 Stock Price S(t) 60 50 40 30 20 0 0.2 0.4 0.6 0.8 1 time t 1