Investment Options Research Paper Example | Topics and Well Written Essays - 2000 words

Investment Options - Research Paper ExampleIndividuals or firms who speculate in futures contracts by purchasing to profit from a price increase or selling to profit from a price pass ar aptly termed as speculators. Suffice it to say that speculators put their money at risk in the hope of profiting from an anticipated price change. Buying futures contracts with the hope of later being equal to sell them at a higher price is known as firing long. Conversely, selling futures contracts with the hope of being able to buy back identical and offsetting futures contracts at a lower price is known as going short.An arbitrageur is a type of investor, actually a type of speculator, who attempts to profit from price inefficiencies in the marketplace by making simultaneous tradesthat offset each other andcapture risk-free profits.An arbitrageur would, for example, seek proscribed price discrepancies between stocks listed on more than one exchange, buy the undervalued shares on the one exc hange piece short selling the same number of overvalued shares on the other exchange, thus capturing risk-free profits as the prices on thetwoexchanges converge. Arbitrageurs are typically actually experienced investors since arbitrage opportunities are difficult to find and need relativelyfast trading.The 3 amigos were certainly not hedgers as they were not concerned about protecting the interest of Getty Oil. They were, in fact, keen on making a quick buck out of buying shares of Getty Oil (which were very cheap) and selling them at a higher price when the takeover battle commences. In this regard, they can be considered as speculators as they are buying the shares in the hope of higher selling prices in the future. However, because the three amigos were taking advantage of the price inefficiency of Getty Oil which was at 30$ instead of having risen to $50 to 60, they are arbitrageurs. They were so keen in capturing risk free profits or at least an investment with very little risk. 2. Describe step-by-step their strategy. What were the major surmises of their strategy They were relying on what type of investors to move in what wayThe strategy of the three amigos is to find a stock price which carried with it minimal or no risks (i.e. stock price would not go down in the future). They were looking for a company that was not closely observed by stock traders and which was very likely to have stock prices going up thereby making them earn profits in a very short period.The major assumption that the three amigos made was that Getty Oils stock price was not likely to go down and the conditions were ripe for an increase. They arrived at this by considering that Getty Oil was selling only at a low multiple of its cash escape and had assets that can be easily valued and liquidated. Getty Oil also had assets in the right place and had be reserves. The political, economic and oil industrys environment also showed that is highly probable that oil players will b e at the winning edge in the future. The only reason that Getty Oil stock price hasnt risen even so despite all the positive factors was that the shareholders were segmented which was causing inefficiency in grabbing the opportunity. With an imminent takeover, Getty Oil will short take advantage of the positive fact