Case Study Description of Trading Strategies with Options
This is a Darden case study.This technical note provides a brief introduction to option trading strategies. It covers pay-off diagrams and specifically introduces bull spreads, butterfly spreads and calendar spreads. It also introduces straddles, strips, and strangles.
Swot Analysis of "Trading Strategies with Options" written by Robert M. Conroy includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Spreads Strangles facing as an external strategic factors. Some of the topics covered in Trading Strategies with Options case study are - Strategic Management Strategies, Financial management, Financial markets and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Trading Strategies with Options casestudy better are - – challanges to central banks by blockchain based private currencies, central banks are concerned over increasing inflation, increasing inequality as vast percentage of new income is going to the top 1%, there is increasing trade war between United States & China, cloud computing is disrupting traditional business models, there is backlash against globalization, increasing commodity prices,
geopolitical disruptions, wage bills are increasing, etc
Introduction to SWOT Analysis of Trading Strategies with Options
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Trading Strategies with Options case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Spreads Strangles, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Spreads Strangles operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Trading Strategies with Options can be done for the following purposes –
1. Strategic planning using facts provided in Trading Strategies with Options case study
2. Improving business portfolio management of Spreads Strangles
3. Assessing feasibility of the new initiative in Finance & Accounting field.
4. Making a Finance & Accounting topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Spreads Strangles
Strengths Trading Strategies with Options | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Spreads Strangles in Trading Strategies with Options Harvard Business Review case study are -
High switching costs
– The high switching costs that Spreads Strangles has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Spreads Strangles digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Spreads Strangles has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Successful track record of launching new products
– Spreads Strangles has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Spreads Strangles has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Sustainable margins compare to other players in Finance & Accounting industry
– Trading Strategies with Options firm has clearly differentiated products in the market place. This has enabled Spreads Strangles to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Spreads Strangles to invest into research and development (R&D) and innovation.
Effective Research and Development (R&D)
– Spreads Strangles has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Trading Strategies with Options - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Diverse revenue streams
– Spreads Strangles is present in almost all the verticals within the industry. This has provided firm in Trading Strategies with Options case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Training and development
– Spreads Strangles has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Trading Strategies with Options Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Operational resilience
– The operational resilience strategy in the Trading Strategies with Options Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Learning organization
- Spreads Strangles is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Spreads Strangles is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Trading Strategies with Options Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
High brand equity
– Spreads Strangles has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Spreads Strangles to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Innovation driven organization
– Spreads Strangles is one of the most innovative firm in sector. Manager in Trading Strategies with Options Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Ability to lead change in Finance & Accounting field
– Spreads Strangles is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Spreads Strangles in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Weaknesses Trading Strategies with Options | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Trading Strategies with Options are -
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Trading Strategies with Options, it seems that the employees of Spreads Strangles don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Aligning sales with marketing
– It come across in the case study Trading Strategies with Options that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Trading Strategies with Options can leverage the sales team experience to cultivate customer relationships as Spreads Strangles is planning to shift buying processes online.
Capital Spending Reduction
– Even during the low interest decade, Spreads Strangles has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Spreads Strangles is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Trading Strategies with Options can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
High operating costs
– Compare to the competitors, firm in the HBR case study Trading Strategies with Options has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Spreads Strangles 's lucrative customers.
High bargaining power of channel partners
– Because of the regulatory requirements, Robert M. Conroy suggests that, Spreads Strangles is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
High cash cycle compare to competitors
Spreads Strangles has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Spreads Strangles supply chain. Even after few cautionary changes mentioned in the HBR case study - Trading Strategies with Options, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Spreads Strangles vulnerable to further global disruptions in South East Asia.
Slow to strategic competitive environment developments
– As Trading Strategies with Options HBR case study mentions - Spreads Strangles takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
Skills based hiring
– The stress on hiring functional specialists at Spreads Strangles has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Lack of clear differentiation of Spreads Strangles products
– To increase the profitability and margins on the products, Spreads Strangles needs to provide more differentiated products than what it is currently offering in the marketplace.
Opportunities Trading Strategies with Options | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Trading Strategies with Options are -
Building a culture of innovation
– managers at Spreads Strangles can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Finance & Accounting segment.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Finance & Accounting industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Spreads Strangles can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Spreads Strangles can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Spreads Strangles in the consumer business. Now Spreads Strangles can target international markets with far fewer capital restrictions requirements than the existing system.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Spreads Strangles can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Trading Strategies with Options, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Spreads Strangles in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Finance & Accounting segment, and it will provide faster access to the consumers.
Learning at scale
– Online learning technologies has now opened space for Spreads Strangles to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Spreads Strangles to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Spreads Strangles to hire the very best people irrespective of their geographical location.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Spreads Strangles to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Buying journey improvements
– Spreads Strangles can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Trading Strategies with Options suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Spreads Strangles can use these opportunities to build new business models that can help the communities that Spreads Strangles operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Developing new processes and practices
– Spreads Strangles can develop new processes and procedures in Finance & Accounting industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Leveraging digital technologies
– Spreads Strangles can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Spreads Strangles is facing challenges because of the dominance of functional experts in the organization. Trading Strategies with Options case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Threats Trading Strategies with Options External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Trading Strategies with Options are -
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Spreads Strangles can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Trading Strategies with Options .
Consumer confidence and its impact on Spreads Strangles demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Shortening product life cycle
– it is one of the major threat that Spreads Strangles is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Environmental challenges
– Spreads Strangles needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Spreads Strangles can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Spreads Strangles.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Spreads Strangles in the Finance & Accounting industry. The Finance & Accounting industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Spreads Strangles will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Technology acceleration in Forth Industrial Revolution
– Spreads Strangles has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Spreads Strangles needs to keep up with the evolution of technology in the Finance & Accounting sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Trading Strategies with Options, Spreads Strangles may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Finance & Accounting .
Regulatory challenges
– Spreads Strangles needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Finance & Accounting industry regulations.
Easy access to finance
– Easy access to finance in Finance & Accounting field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Spreads Strangles can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Stagnating economy with rate increase
– Spreads Strangles can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Weighted SWOT Analysis of Trading Strategies with Options Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Trading Strategies with Options needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Trading Strategies with Options is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Trading Strategies with Options is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Trading Strategies with Options is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Spreads Strangles needs to make to build a sustainable competitive advantage.