It is expected the global economy to experience a drop in growth in 2020, but this should be followed by a prompt rebound once the COVID-19 outbreak comes under control. A private bank is asking you to provide investment ideas for its end clients.

Suppose a private bank client has US$1,000,000 to investment. Identify a derivatives strategy that take advantage of the current market opportunity. The components of your trading strategy could be more than one leg by using either futures or options or both. The underlying asset is your choice.

a) What is the market outlook and how does your trading strategy fit in?

b) Describe your trading strategy in details. e.g. What is the underlying asset? What are the derivatives composition? How many contracts? How the trade is structured? How long is the maturity? What is the cost? How the pricing is done? What are the upside and downside potential? Any leverage? etc. The market prices can be obtained from e.g. Bloomberg, finance.yahoo.com, and exchanges such as cmegroup.com, hkse.com.hk. A screenshot of the pricing reference must be provided with you submission.

c) Discuss the risk, reward and breakeven associated with your trade idea.

d) Illustrate the payoff diagram and scenario analysis.