Question #3 Wealth Management and Derivatives You are a portfolio manager for wealthy clients. A new client comes to you office to explore strategy. Their portfolio size is $10 million all in a taxable account. Your back-office analysts provide you with the following 2021 capital market assumptions: t ROI Cash: Virtually 0% ROI Bonds: 2.5% ROIS & P 500 12% Options (short puts) 70% You already know broker requirements pertaining to margin (long and short) and non-margin buying power. You also know that the Mini S&P 500 ES futures contract initial margin requirement is $13,200 and maintenance is $12,000. The multiplier is 50x. t They wish to discuss two strategies with you and have two questions for each. What is the projected portfolio annualized ROI and 5-year FV? Besides the two strategy questions, they have additional questions. A.) Put all the money into an equity portfolio (SPY) and maximize the option short put strategy. Provide the annualized ROI and 5-year FV. B.) Put the money into Cash (money market), % into ES futures, and the in cash will be used for the option strategy. Provide the annualized ROI and 5-year FV.-- t C.) At what point would they get a margin call with the futures? D.) At what point would they get a margin call with the options? Question #3 Wealth Management and Derivatives You are a portfolio manager for wealthy clients. A new client comes to you office to explore strategy. Their portfolio size is $10 million all in a taxable account. Your back-office analysts provide you with the following 2021 capital market assumptions: t ROI Cash: Virtually 0% ROI Bonds: 2.5% ROIS & P 500 12% Options (short puts) 70% You already know broker requirements pertaining to margin (long and short) and non-margin buying power. You also know that the Mini S&P 500 ES futures contract initial margin requirement is $13,200 and maintenance is $12,000. The multiplier is 50x. t They wish to discuss two strategies with you and have two questions for each. What is the projected portfolio annualized ROI and 5-year FV? Besides the two strategy questions, they have additional questions. A.) Put all the money into an equity portfolio (SPY) and maximize the option short put strategy. Provide the annualized ROI and 5-year FV. B.) Put the money into Cash (money market), % into ES futures, and the in cash will be used for the option strategy. Provide the annualized ROI and 5-year FV.-- t C.) At what point would they get a margin call with the futures? D.) At what point would they get a margin call with the options
