Question
Stock TYU currently trades at 400 pence a share. The stock is from a major company and at all times there are several buyers and
Stock TYU currently trades at 400 pence a share. The stock is from a major company and at all
times there are several buyers and sellers of TYU shares who are willing to trade at the prevailing
market price. Investor Charlotte wants to sell shares of TYU, investor Daniel wants to buy shares of
TYU, and both are willing to trade at the prevailing market price. BBB is a pension fund that holds
large amounts of TYU shares as a long-term investment. BBB have no intention of selling those
shares. Brokerage house Bafflefield & Associates acts on behalf of BBB and is able to lend
moderately large amounts of BBB's holdings of TYU shares to outside investors, against a borrowing
fee of 7 pence per share per day.
You have analysed the company and are convinced that the price of TYU stock will fall to 280 pence
per share by the end of the day. You don't own any TYU shares yourself but you wish to implement a
trading strategy that will allow you to make a profit if your beliefs about TYU are correct.
How do you set up your strategy? Give full details on all your interactions with the other market
participants, and on the various long and short positions that you hold as your strategy unfolds.
Discuss the risks involved in your strategy.
WORD LIMIT Q1: Two (2) normally formatted pages, or the equivalent of 500 words.
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