. The company's stock is very volatile due to its high leverage. However due to companies active selling of assets and IPO of automotive and property management company, its stock price is reasonably stable around 12-18HKD/share. For some investors the company's stock looks very cheap, because: 1. As largest real estate developer in China it enjoys strong government support. 2. As the threat of Corona virus subside in China, the economy recovered, and real estate sector enjoys the low interest rate environment. 3. China Evergrande has developed innovative online selling strategy to boost its home sales. 4. At Price Earning Ratio of only 10.64 and stock dividend of 4.6%, there is good return to be made. 5. Analysts consensus estimate of target price in one year is 28HKD, much higher than today's stock price. Based on your analysis, please design an option strategy (with tenor of 1 year) to protect investor against possible loss (no more than 5%) but still able to get at least 10% expected return on the stock. Assuming investor has 2mm HKD to invest or buy options. Assuming one year option volatility is 50%, you can use option pricer to calculate the option value. Assuming current stock price of 15HKD. Dividend yield is 5%. HKD interest rate is 0.2%. . The company's stock is very volatile due to its high leverage. However due to companies active selling of assets and IPO of automotive and property management company, its stock price is reasonably stable around 12-18HKD/share. For some investors the company's stock looks very cheap, because: 1. As largest real estate developer in China it enjoys strong government support. 2. As the threat of Corona virus subside in China, the economy recovered, and real estate sector enjoys the low interest rate environment. 3. China Evergrande has developed innovative online selling strategy to boost its home sales. 4. At Price Earning Ratio of only 10.64 and stock dividend of 4.6%, there is good return to be made. 5. Analysts consensus estimate of target price in one year is 28HKD, much higher than today's stock price. Based on your analysis, please design an option strategy (with tenor of 1 year) to protect investor against possible loss (no more than 5%) but still able to get at least 10% expected return on the stock. Assuming investor has 2mm HKD to invest or buy options. Assuming one year option volatility is 50%, you can use option pricer to calculate the option value. Assuming current stock price of 15HKD. Dividend yield is 5%. HKD interest rate is 0.2%
