Case Study : Calipso Capital Consultants
Calipso Capital Management (CCC), an investment management firm with offices throughout Ohio, is headquartered in Cincinnati. CCC normally actively manages accounts for high-income individuals with assets of $500,000 or more. Peter Myers, managing director of CCC, thought the increased interest of clients in security op¬tions required more than routine advice because he knew that many clients did not fully appreciate the risks and hedging aspects of buying and selling puts and calls. He had personally spent many hours explaining the vocabulary and technical trad¬ing aspects of option vehicles to clients who found the area exciting but nonethe¬less arcane.
EXHIBIT 1
Bio-Genetics Corp. Option Quotes
STOCK PRICE: 162
CALLS PUTS
STRIKE
PRICE APR JULY OCT APR JULY
140 23
150 16 21 25 1 4
160 9 14 20 3 7
170 3 9 13 9 10
180 1 5 9 20
Note: blank spaces denote option not offered or not traded.
Janet Barnes joined the firm three months ago after spending one year in Dean Witter's training program in Cleveland. She received a broad training with emphasis in options and futures instruments. Myers though Barnes would be an important member of the firm in its dealings with clients interested in securities options.
The first task that Barnes faced was preparing an analysis of various strategies in the options of Bio-Genetics Corp., a company about which a young dentist in Berea had called. The dentist owned the stock and wanted to explore various strategies to either hedge or enhance his position.
Data provided in Exhibit 1 relate to key information on Bio-Genetics puts and calls. Bio-G ...