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Mr. Jones is a 53 year old owner/manager for a large food processing company that is worth $75 million. He has amassed a personal fortune that is worth $48 million, invested as follows: 20% in fixed income/interest bearing securities, 45% in cash equities (stocks), 15% in real estate a 20% in cash. His stock holdings are mostly large-cap companies, more than Ã?¾ are ââ?¬Å"blue-chipââ?¬Â? type companies. His investment objectives are growth and income and his risk tolerance I low-to-moderate. Recently he approached you and stated that he wanted to become slightly more aggressive and wants to take a $1 million position in SanDisk Co. (SNDK). SanDisk is a lower cap growth company. Given what you know, offer Mr. Jones two ideas using the options Exhibit C, outlying the pros and cons and your suggestion for why he should choose one of those strategies.

This must be detailed include why one strategy is better than the other. and the benefits and cons of each stategy. There must also be a seperate strategy for just buying the stock.

SanDisk is currently trading at $50.92

I've attached the choices of options you can use.


Solution Preview

Jones has around 21.6 million dollars invested in equities, out of which 3/4th of the portfolio is in blue chip companies. His total cash position is close to 9.6 million dollars. Hence, given the overall portfolio size and diversification, $1 million investment in lower cap growth or high risk company is quite okay for investor like Jones with low to medium risk appetite. With the effective use of options, his downside in this investment will be quite limited. The investment will be around 2% of the overall portfolio and thus, would not affect the earnings of the overall portfolio, if gone wrong.

In order to build his position, Jones should not buy all the San Disk stock at once. He should build up his position by buying the stocks in patches, so that even if the stock falls, he can average out his purchases by buying small quantities each time. This strategy will allow Jones to avoid being trapped at a higher buying price, in case the ...

Solution Summary

This is options related and there must be aleast 2 strategies presented to the client to achieve their goals. You must take the whole portfolio into consideration.