Futures and Options Markets
Overview of Trading Game Project
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
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.
Please follow this link to register to use StockTrack. Note that the class code is FARE-4240Futures&Options.
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 8 trades
a) 1 futures trade to hedge a commodity of your choice
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 (include citations), how did you execute the trade, what were the results, and why those results occurred.
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
Executive Summary [Maximum ONE page] –
Brief detail of all your activities and their results.
Table of Contents
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.
Set-up the scenario in which you are a hedger (i.e. are you buying an input or selling a product in the future). 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. When you close out the contract, calculate your net buying or selling price.
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.
Overall Financial Results
Neatly summarize the profits/losses from your trades
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
Supporting materials (charts, tables, etc..)
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