Futures and Options Markets Assignment -
Overview of Trading Game Project
Objective: The objective of the simulation trading game is to allow students an opportunity to use derivative instruments to address practical problems in a simulated business environment.
Accessing StockTrak: We will be using an on-line simulated trading game to reinforce concepts discussed in class. The program we use is StockTrak, which is a virtual trading site using real-time data from actual market exchanges. You will be given a trading account and are required to make trades on-line using real-time prices throughout the semester. In the process, you will get to experience trading using futures and options, without having to risk any of your own money.
Cost of StockTrak: The cost to using StockTrak is C$40 per student per semester. However, there is no cost for access to StockTrak this year due to the generous support provided by the Student Federation of the Ontario Agricultural College (SFOAC) under the Student Teaching Enhancement Fund (STEF).
Trading Game Deliverable: The main deliverable of the simulation trading game project is a final report. The objective of the report is to outline the trades made and, most importantly, justify those trades. It does not matter how much money your make or lose but only your reasons for entering into the trades.
You are required to make one NINE trades:
a) 1 futures trade to hedge a commodity of your choice (passive account),
b) 3 futures trades on commodities (grains, livestock, metals, etc.),
c) 1 futures trade on an index,
d) 1 futures trade on a currency, and
e) 3 options contracts on stocks or futures.
The report should describe the basis for each trade (i.e., reasons as to why the underlying has been traded, include citations), how did you execute the trade, what were the results, and why those results occurred. It is essential that you justify every trade you placed. Prior to entering a trade, research the commodity so you can justify why you entered into that particular trade. You will want to maintain a journal of articles used for research (WSJ, popular press articles, etc.) for the final report. Every time you place a trade on StockTrack, you must use the Trade Notes feature on StockTrack to write a sentence or two providing justification for why you think each order is a good move for your portfolio.
Format of Report:
The written account of your selected trading activity and analysis should be well organized, well written and professionally presented. This includes properly citing references, ensuring tables (and figures) are not split between pages, the tables and figures are properly titled and labeled, and sections are appropriately formatted. A potential outline of the report is provided on the next page.
Potential Outline of Report -
Cover Page
Executive Summary [Maximum ONE page]
Brief detail of all your activities and their results.
Table of Contents
1. Introduction [Maximum ONE page]
Provide the reasons for the exercise/report, your objectives, and a discussion of your role as speculator and speculators in general.
2. Commodity Hedged
Set-up the scenario in which you are a hedger (i.e., are you buying an input or selling a product in the future?). Record and discuss the current cash price and the futures contract you use to manage your price risk. Include the reasons for the time and size of the contract.
Hold on the hedge position for the duration of the trading period (i.e., January 15, 2018 - March 16, 2018). When you close out the contract, record the cash and futures prices, and calculate your net buying or selling price.
3. Futures Speculated
3.A. Commodity One
3.B. Commodity Two
3.C. Commodity Three
3.D. Index
3.E. Currency
4. Options Traded
4.A. Option One
4.B. Option Two
4.C. Option Three
Discuss the reasons for choosing your initial position within each of the above seven trades.
Clearly and appropriately reference the sources for the market information used to justify your initial position. Unsupported statement such as, "I thought the market was going to go down so I sold short" will earn you nothing. The appropriate use of fundamental and technical analyses will be a key part of the evaluation of this exercise. Provide an analysis of the trade outcome including a price chart to show what happened to your position.
5. Overall Financial Results
Neatly summarize the profits/losses from your trades
6. Summary and Conclusions [Maximum TWO pages]
Summarize and discuss your ability to hedge or speculate using futures and options.
Include a short critique of StockTrak (i.e., what you learned, how it worked, how the exercise could be improved). Discuss your experience and what you learned.
7. References
Use MLA guidelines.
TRADING INSTRUCTIONS:
1. You are required to make a minimum of 16 round turns. (NOTE: This means that you must make at least eight buy and eight sell decisions.) The purchase or sale of two contracts of corn on a certain day is one, not two, decisions. Trade as often as you like; eight is just the minimum; the more you trade, the more comfortable you will become with futures contracts. You must close all trades by March 16th (i.e., you will offset all contracts).
2. You must start trading on January 15th. You may start trading on January 10th and all trades must be completed by March 16th.
3. You will have an initial capital level of $1,000,000 for trading. Out of this capital base you must pay commissions, post margin, and cover any losses.
4. You are NOT allowed to day trade for more than half of your trades, and if you are not familiar with markets, you may not want to trade with this strategy.
5. You must use Trade Notes feature to keep a record of all your transactions for your personal use as you will be asked to report your trades in your written report.
Attachment:- Assignment Files.rar