Derivatives assignment

TRINITY BUSINESS SCHOOL Trinity College Dublin

INDIVIDUAL/GROUP ASSIGNMENT COVER SHEET

M.Sc. Finance

Module: DERIVATIVES(BU7508) Date Due: 18-11-2016

This sheet must be attached to your assignment. The onus is on the student to keep a

hard copy of all assignments.

This is my own work. Any material taken from other sources has been fully referenced in the text of the work. All sources used in the preparation of this work have been listed in the Bibliography.

I have read the statement on plagiarism in the College Calendar, p.H18-H.20

http://www.tcd.ie/calendar/ and understand that plagiarism is an offence that may result in

expulsion from the University.

Student Number Student Surname

(BLOCK CAPS)

Signature

16311740 NITIN GUPTA

Record of Assignment Extension

IF AN EXTENSION IS DUE TO ILLNESS PLEASE ATTACH A COPY OF

YOUR MEDICAL CERTIFICATE. IF AN EXTENSION IS DUE TO

EXTENUATING CIRCUMSTANCES AND AGREED WITH YOUR LECTURER,

PLEASE FORWARD PROOF OF SAME (e-mail from Lecturer will suffice)

DERIVATIVES BU7508

“ANALYSIS OF STOCK TRACK TRADING”

PROFESSOR : DR. SHAEN CORBET

DATE : NOVEMBER 18, 2016

Nitin Gupta 16311740

Introduction

Derivatives and Derivatives Market

“A derivative is a contract between two parties which derives its value/price from an

underlying asset. The most common types of derivatives are futures, options, forwards

and swaps.”- Economic Times (1)

The most common underlying assets are Stocks, Bonds, Currency, Interest Rates and various indexes.

However Now a days derivatives can be virtually on anything under the sun including weather

derivatives

Derivatives cab be traded on

Derivatives Exchange (Standardised Contracts)

Over the counter Markets (Non standardised Contracts)

In today’s scenario OTC market, has much larger trading volume than the exchange traded funds.

Our Assignment:

As part of Learning experience for MSc. finance at Trinity college, Dublin, we were required to

conduct trades in Derivatives using the Stock Track online software.

Stock track is a stock market simulating software that attempts to provide features of a live stock

market to provide learning experience like working in the stock market without investing any money.

For the Derivatives project, with the goal of generating the highest possible return, a total of 50

trades were conducted using various available financial instruments including Forwards, Futures and

options.

The financial Derivatives World

Major learnings from the assignment

As part of Derivatives course, taught us By Professor Brian Lucy, the assignment provided a very

deep practical understanding of Derivatives markets and helped me to learn various aspects of

Derivative Trading including but not limited to:

1.Understand the Economic rationale behind workings of the derivative markets, its various

instruments and the terminology used in the trading

2.Understanding the actual pricing and valuation of various financial derivatives Instruments used in

the market place.

3.Understanding how to analyse and predict the past and the future performance of the companies

and taking advantage of such analysis to make economical profits.

4.Understanding and appreciating the deep difference between the various derivatives instruments

such as Forwards, Swaps, Futures and options with puts and calls.

(2)

And most importantly, among the ups and downs during the trading I understood the meaning

and the Depth of this statement by Warren Buffet.

Overall it can be learnt that Derivatives as a financial instruments provides a whole range of benefits,

Risk protection being the prime of them, however if the game gone wrong it can also bring disaster

due to its amplification and leverage effects and may result in losses exceeding many times the

original investments and subsequently bankruptcy as we have seen with various examples in the

class(3) the cases of various organizations especially the banks that were supposed to be experts in

trading of Derivatives.

Value of Portfolio Across Different Days

Date Portfolio Value Trades Made Class Rank

10-24-16 99811.41734 3 60

10-25-16 98124.40302 3 81

10-26-16 98897.34895 4 67

10-27-16 98303.79226 5 64

10-28-16 99020.954 5 42

10-29-16 99027.464 5 42

1030-16 99033.974 5 43

10-31-16 100590.2331 5 18

11-01-16 108588.8973 19 6

11-02-16 109777.2559 21 8

11-03-16 227217.7419 40 3

11-04-16 228170.8818 40 5

11-05-16 228189.2918 40 5

11-06-16 228207.7118 40 5

11-07-16 230759.3469 40 5

11-08-16 240745.6316 42 5

11-09-16 253016.5037 45 5

11-10-16 245505.0398 45 5

No. Date Company Name QuantitySecurity Type Transaction type Price Transaction Amount

1 10-24-2016 Unilever PLC 500 Equities Market - Buy EQUITIES £34.9450 -$19,627.8300

2 10-24-2016 GBP/USD DEC 16 1 Futures Market - Buy FUTURES $1.2253 $0.0000

3 10-24-2016 CBOT MINI DOW USD 5 DEC 16 3 Futures Market - Buy FUTURES $18,141.0000 $0.0000

4 10-26-2016 Apple Inc 4 Options Market - Buy OPTIONS $2.9400 -$1,080.1200

5 10-27-2016 BRENT CRU OIL LASDA DEC 16 1 Futures Market - Short FUTURES $50.3900 $0.0000

6 11-01-2016 Aircastle Ltd 20 Options Market - Buy OPTIONS $1.6000 -$2,915.2900

7 11-01-2016 Bright Horizons Family Solutions 20 Options Market - Buy OPTIONS $1.8500 -$3,370.8100

8 11-01-2016 Apple Inc 4 Options Market - Sell OPTIONS $3.0000 $1,093.2300

9 11-01-2016 Unilever PLC 500 Equities Market - Sell EQUITIES £34.4800 $19,226.6700

10 11-01-2016 GBP/USD DEC 16 1 Futures Market - Sell FUTURES $1.2238 -$85.4100

11 11-01-2016 CBOT MINI DOW USD 5 DEC 16 3 Futures Market - Sell FUTURES $18,032.0000 -$1,489.5300

12 11-01-2016 Aircastle Ltd 20 Options Market - Sell OPTIONS $0.0000 $0.0000

13 11-01-2016 Aircastle Limited 2000 Equities Market - Sell EQUITIES $20.0000 $40,000.0000

14 11-01-2016 Aircastle Limited 2000 Equities Market - Cover EQUITIES $18.6400 -$33,963.1600

15 11-01-2016 Aircastle Limited 2000 Equities Short Proceeds EQUITIES $18.6400 $0.0000

16 11-01-2016 Bright Horizons Family Solutions 20 Options Market - Sell OPTIONS $0.0000 $0.0000

17 11-01-2016 Bright Horizons Family Solutions Inc.2000 Equities Market - Sell EQUITIES $65.0000 $130,000.0000

18 11-01-2016 Bright Horizons Family Solutions Inc.2000 Equities Market - Cover EQUITIES $66.4400 -$121,057.5200

19 11-01-2016 Bright Horizons Family Solutions Inc.2000 Equities Short Proceeds EQUITIES $66.4400 $0.0000

20 11-01-2016 GOLD 1 OZ DEC 16 1 Futures Market - Buy FUTURES $1,289.9000 $0.0000

21 11-01-2016 BRENT CRU OIL LASDA DEC 16 1 Futures Market - Cover FUTURES $48.3300 $1,876.7196

22 11-02-2016 BRENT CRU OIL LASDA JAN 17 1 Futures Market - Short FUTURES $47.4400 $0.0000

23 11-02-2016 BRENT CRU OIL LASDA JAN 17 1 Futures Market - Cover FUTURES $47.0300 $370.7600

24 11-03-2016 COPPER HIGHGRADE DEC 16 2 Futures Market - Buy FUTURES $2.2330 $0.0000

25 11-03-2016 GOLD 1 OZ DEC 16 1 Futures Market - Sell FUTURES $1,291.2000 $117.1700

26 11-03-2016 COFFEE DEC 16 1 Futures Market - Buy FUTURES $1.6455 $0.0000

27 11-03-2016 COPPER HIGHGRADE DEC 16 2 Futures Market - Sell FUTURES $2.2450 $540.7600

28 11-03-2016 COFFEE DEC 16 1 Futures Market - Sell FUTURES $1.6575 $405.5700

29 11-03-2016 Facebook Inc. 100 Equities Short Proceeds EQUITIES $121.4200 $10,943.2700

30 11-03-2016 Alphabet Inc 5 Options Market - Buy OPTIONS $6.9000 -$3,109.4000

31 11-03-2016 Facebook Inc. 100 Equities Market - Cover EQUITIES $121.1800 $21.6300

32 11-03-2016 Facebook Inc. 100 Equities Short Proceeds EQUITIES $121.1800 -$10,943.2700

33 11-03-2016 Facebook Inc 75 Options Market - Buy OPTIONS $0.6500 -$4,393.7100

34 11-03-2016 Apache Corp 100 Options Market - Buy OPTIONS $0.5300 -$4,776.7500

35 11-03-2016 Facebook Inc 75 Options Market - Sell OPTIONS $0.0000 $0.0000

36 11-03-2016 Facebook Inc. 7500 Equities Market - Sell EQUITIES $120.0000 $900,000.0000

37 11-03-2016 Facebook Inc. 7500 Equities Market - Cover EQUITIES $121.7800 -$823,178.9900

38 11-03-2016 Facebook Inc. 7500 Equities Short Proceeds EQUITIES $121.7800 $0.0000

39 11-03-2016 Alphabet Inc 5 Options Market - Sell OPTIONS $6.4000 $2,884.0800

40 11-03-2016 Apache Corp 100 Options Market - Sell OPTIONS $0.0000 $0.0000

41 11-03-2016 Apache Corporation 10000 Equities Market - Sell EQUITIES $56.5000 $565,000.0000

42 11-03-2016 Apache Corporation 10000 Equities Market - Cover EQUITIES $57.1300 -$514,898.0700

43 11-03-2016 Apache Corporation 10000 Equities Short Proceeds EQUITIES $57.1300 $0.0000

44 11-03-2016 General Electric Co 100 Options Market - Buy OPTIONS $0.3600 -$3,244.5900


46 11-08-2016 COPPER HIGHGRADE DEC 16 5 Futures Market - Buy FUTURES $2.3015 $0.0000

47 11-08-2016 General Electric Co 100 Options Market - Sell OPTIONS $1.1800 $10,684.4900

48 11-09-2016 General Electric Company 500 Equities Market - Buy EQUITIES $29.2700 -$13,288.1200


50 11-09-2016 COPPER HIGHGRADE DEC 16 5 Futures Market - Sell FUTURES $2.4610 £34.4800

Transaction Summary (In chronological order)

Snap Shot of Portfolio:

Cash Related Items Cash Balance € 2,31,533.84

Short Sale Proceeds € 0.00

Loan Balance € 0.00

Interest Earn Rate € 201.18

Interest Charged on Loan € 0.00 Total Mark to Market Value for Futures -€ 8,076.74

Restricted Funds € 0.00

Margin Requirements € 26,400.00 Market Value Market Value of Long Positions € 13,971.20

Accrued Interest Earned on Bonds € 0.00

Market Value of Short Positions € 0.00

Net Market Value of all Positions € 13,971.20 Portfolio Summary Portfolio Value € 2,45,505.04

Percentage Return 145.51%

Buying Power € 2,05,133.84

Trades Made/Allowed 45/9955

Current SPY ETF € 217.87

SPY ETF at start date € 213.01

SPY ETF % Return 2.23%

The data has been taken from Stock track and the Portfolio value and Percentage return value are

highly inflated due to calculation errors as discussed in the class and hence should not be

considered the real achieved value.

Description of Various Trades

1.For Better understanding of my work, each security will be individually described and analysed.

2.The calculations are somewhat different from the calculations done by StockTrack software

Unilever Plc

No. Date Company Name Quantity Transaction type Price Transaction Amount

1 10-24-16 Unilever PLC 500 Market - Buy EQUITIES

£34.9450 -$19,627.8300

2. 11-01-16 Unilever PLC 500 Market - Sell EQUITIES

£34.4800 $19,226.6700

Profit Loss

Introduction

Uniliver is a UK based multinational dealing in fast moving consumer goods, especially, personal care

products, foods and beverages, and household cleaning products. The company was in the top 5

global company in consumer goods by capitalization and has presence in all most all the countries.

The famous brands of uniliver are Dove, Lux, Knorr, Rexona, Sun silk and Surf with the total revenue

of around €53 billion. (5)

Trading Motivation and strategy

Amid the growing pressure on margins due to the fall in the value of British Pound Sterling amid the

Brexit chaos, unilever must increase the price of various products hence was expected to increase its

overall margins. Due to increase in prices in various products a major standoff took place with Tesco

plc, UK largest grocer with Tesco removing Unilever items from its shelves in Uk and Ireland.

However, Unilever refused to budge and ultimately Tesco had to restore selling at increased pricing.

Hence there were many speculations of the stock price rising also upcoming festive season also

played an added factor in making this stock attractive. However, the trade results in a net loss.

Our trade

500 equities were purchased @£34.9450/equity on 24th October and were sold @£34.4800 after

viewing the downward movements on 1st November thus resulting net loss of $401.16 excluding

brokerage.

British Pound/US dollar Future Swaps

Date Company Name Qty. Transaction type Price Transaction Amount

10-24-2016

GBP/USD DEC 16

1 Market - Buy FUTURES $1.2253 $0.0000

11-01-2016

GBP/USD DEC 16

1 Market - Sell FUTURES $1.2238 -$85.4100

Downward movement by 15 tick points (1 tick point = 0.0001) @ corresponding tick value of $ 6.25

Profit Loss

(5) Comparison of GBP/USD future swaps for the last one Month.

Introduction:

The pound sterling with American dollars forms the longest running currency combination popularly

known as “THE CABLE” and is among the top favourites among the traders.

After the Theresa mayor publicised her intention to Article 50, to separate United Kingdom from the

European Union, The British Pound took a massive hit and plunged to its lowest level in 31 years

when compared against the dollars in October. Also, the speculations of a Hard Brexit as warned by

various leaders around the world added to the vows of pound. (6)


In the aftermath of Brexit, the pound saw its value declining. According to the market sentiments it

was observed that the pound has hit the bottom but and hence Pound/Dollar future was ordered

with Bullish sentiments, however, the real movements stood against my thinking with the currency

future falling in value and hence was subsequently sold in loss.

Our trade

1 future contract representing 62500 British Pounds, maturing in December 2016 at the rate of

$1.2253 was purchased and was subsequently sold at 1.2238, hence losses incurred from the

downward movements creating a loss tick of 15 points @ $6.25/tick. The total loss was $93.75;

escalated by some amount due to commissions.

CBOT MINI DOW USD 5 DEC 16


10-24-2016


3 Market - Buy FUTURES $18,141.0000

$0.0000

11-01-2016


3 Market - Sell FUTURES $18,032.0000

-$1,489.5300

D./Z6 =Futures expiring in December 2016

Profit Loss

Introduction

Chicago Board of options Trading (CBOT) offers a smaller and accessible version of the standard

DOW JOHNS INDUSTRIAL INDEX. The index represents 30 top capitalized blue chip companies from

different sectors and hence is a bench mark for most of the indexes and American stock market.

CBOT MINI DOW USD 5 derives its value from the underlying DJIA futures, has quarterly expiration

dates with the above said contract expiring in December and half the size of regular DJIA futures and

due to its lower margin requirement provides an affordable option to the exposure in the US

markets. (7)

Our trade

3 future contracts of Chicago Board of options and Trading (CBOT) Mini Dow USD 5$ futures expiring

in December 2016 were purchased with bullish sentiments but due to the downward movement in

the index, the contract was sold at a loss of $ 1489.53.

Apple Inc.

Date Company Name Qty. Transaction type Premium Price

Transaction Amount

10-26-2016

Apple Inc. 4 Market - Buy OPTIONS $2.9400 -$1,080.1200

11-01-2016

Apple Inc. 4 Market - Sell OPTIONS $3.0000 $1,093.2300

AAPL1611W115: Apple Put option expiring in November 2016 at the strike price of $115.

Profit Loss

Introduction:

Apple Inc. an information technology company headquartered in California, deals in distribution of H

hardware and Software products including its famous products such as Smartphones(IPhone),Laptop

Computers(IMacs),Music player (IPod) and various Third Party based digital services(ITunes).The

company is a market leader in its field and enjoys a very high stream of earnings due to its premium

products with Q4 earnings around $ 47 billion .


The company’s quarterly result was to be declared on 25th October and hence the stock was

expected a lot of volatility immediately before and after the Result Day, hence through implying

active trade strategy, I strived to take out benefit of speculation in such volatile situation observing

the behaviour and market reactions.

Our trade:

4 Put options (right to sell) expiring in November 2016, were purchased at the with the premium

price of $2.9400 and after booking a net loss of $13, the position was sold. The trade was wrapped

up because Apple’s earnings were not in expectation with the Analyst estimates and instead of

exercising the option a trade-off purchase was done to avoid any further losses.

Brent Oil Futures


10-27-2016

BRENT CRU OIL LASDA DEC 16

1 Market - Short FUTURES

$50.3900 $0.0000

11-01-2016

BRENT CRU OIL LASDA DEC 16

1 Market - Cover FUTURES

$48.3300 $1,876.7196

11-02-2016

BRENT CRU OIL LASDA JAN 17

1 Market - Short FUTURES

$47.4400 $0.0000

11-02-2016

BRENT CRU OIL LASDA JAN 17

1 Market - Cover FUTURES

$47.0300 $370.7600

(1cent move = $ 10,1 future contract = 1000 US barrels)

Profit Loss

Motivation and strategy

Amid the collapse of OPEC nations meeting regarding the cut in output production Trading on 27th

October Oil was expected a lot of volatility immediately before and after the meeting, hence through

implying active trade strategy, I strived to take out benefit of speculation in such volatile situation

observing the behaviour and market reactions.

Price Trends of oil for 1 month (9)

Our trade

Amid the falling prices of Brent oil, advantage was taken by short selling the futures of Brent Crude

oil at the current future price of $50.3900 and short selling was recovered at 48.3300 thus making a

profit. Further in the continuation another future was short next day and position was covered the

same day to avoid too much risk dur to volatility in the price of crude Brent oil thus again making a

profit.

Air castle Advisor LLC (NYSE: AYR)

Date Company Name Qty. Transaction type Premium/ Price

Transaction Amount

11-01-2016

Air castle Ltd 20 Market - Buy OPTIONS $1.6000 -$2,915.2900

11-01-2016

Air castle Ltd 20 Market - Sell OPTIONS $0.0000 $0.0000

11-01-2016

Air castle Limited

2000 Market - Sell EQUITIES $20.0000 $40,000.0000

11-01-2016

Air castle Limited

2000 Market - Cover EQUITIES

$18.6400 -$33,963.1600

11-01-2016

Air castle Limited

2000 Short Proceeds EQUITIES

$18.6400 $0.0000

AYR1618W20 - Put Options expiring in 18 Nov,2016 with strike price of $20(Investopedia)

Profit Loss

Introduction

Air castle Advisor LLC is a multinational company headquarter in US, and having its offices in US,

Ireland and Singapore, deals in investments in Aviation assets and earns it’s profits from Leasing,

Selling of commercial Aircrafts and providing various allied services such as Aircrafts Finance and

maintenance. The company has operations in all most all the countries. (10)

1 month stock Price changes in Air Castle Ltd


The company’s quarterly result was to be declared on 1st November and hence the stock was




Our trade

20 Air castle put options expiring in November 2016 was purchased and the option was exercised

and the resulting 2000 equities (20 options contracts) were sold and the deficit in equities were

covered from the market purchase resulting in a profit of 40000 - (33963 + 2915) = $3122.

Bright Horizons Family Solutions


11-01-2016


20 Market - Buy OPTIONS $1.8500 -$3,370.8100

11-01-2016


20 Market - Sell OPTIONS $0.0000 $0.0000

11-01-2016

Bright Horizons Family Solutions Inc.

2000 Market - Sell EQUITIES $65.0000 $130,000.0000

11-01-2016


2000 Market - Cover EQUITIES

$66.4400 -$121,057.5200

11-01-2016


2000 Short Proceeds EQUITIES

$66.4400 $0.0000

BFAM1618W65 = 20 Put options (representing2000 shares) expiring in December,2016 at Strike

price of $65

Profit Loss

Introduction:

Bright Horizons Family Solutions, a company based in US, has a very interesting and unique business

model. It offers child care and other related services and is available for the parents of the

sponsoring companies (sponsoring as part of the compensation package) including day-care and

preparatory schools. The company provides three major services:

Full child care

Backup dependent care

Education advisory services


The company’s quarterly result was to be declared on 1st November and hence the stock was



the behaviour and market reactions

Our trade:

20 Bright Horizon put options expiring in November 2016 was purchased and the option was

exercised and the 2000 equities (20 options contracts) were sold subsequently and were Equities

were covered from the market resulting in a profit of 40000 - (33963 + 2915) = $3122.

Gold Futures


11-01-2016

GOLD 1 OZ DEC 16


$0.0000

11-03-2016

GOLD 1 OZ DEC 16

1 Market - Sell FUTURES $1,291.2000

$117.1700

11-03-2016

GOLD 1 OZ DEC 16


$0.0000

11-09-2016

GOLD 1 OZ DEC 16


$0.0000

GC/Z6: Gold futures expiring in December 2016.

Profit Loss

Introduction:

The yellow metal has been the store of wealth from the ancient civilizations till today. After the US

dollars, it’s the most valued reserve of wealth on the earth. Gold has preserved its value through the

centuries, unlike many assets and paper notes. Gold is traded mainly in physical form as well as in

electronic form (ETF) and has been accepted as part of Portfolio diversification throughout the

world. (11)

“All that matters is GOLD”- Piers


Amid the US elections and uncertainty in stock markets, the gold has always provided the safe

passage as a store of wealth and thus providing protection from any major fluctuation. Hence the

rate of gold was expected to rise and therefore proved to be an attractive preposition.

Our trade:

A single future contract (Gold being too expensive) was purchased on 1st November,2016 And was

sold on 3rd November resulting in a profit. Two subsequent purchasing were also done but the

position was not closed before the end date and hence no results are available.


11-03-2016

COPPER HIGHGRADE DEC 16


11-03-2016


2 Market - Sell FUTURES $2.2450 $540.7600

11-08-2016



11-09-2016


5 Market - Sell FUTURES $2.4610 $18,102.6200

0.0005 per pound = $12.50/contract, 1 cent = $250/ contract (Investopedia)

Profit Loss

Introduction:

Although not as famous as other precious metals such as Gold and silver, copper still plays an

important role in our day to day lives. The use of copper extends to most of the key industries like

Transportation, Electricals, Computers, Wires, transformers and heavy machinery. With the increase

in industrialization the demand for copper has rose manifolds and no major mines discovered in the

last 100 years the price of the copper is rising much faster than its counter parts.

Our trade:

2 future contracts of High grade copper expiring in December were purchased on 3rd November

,2016 at the rate of $2.2330 /pound were purchased and the position was closed the same day at

the rate of $2.2450 and resulting in a profit of $540.7600. Subsequently another trade was

conducted worth 5 future contracts and was liquidated the next day on 9th November thus making a

profit of $18102.6200

Coffee Futures


11-03-2016

COFFEE DEC 16 1 Market - Buy FUTURES $1.6455 $0.0000

11-03-2016

COFFEE DEC 16 1 Market - Sell FUTURES $1.6575 $405.5700

Tick size = 0.05 cent per pound and is equal to $18.75/contract(Investopedia)

Profit Loss

Introduction:

Coffee provide a good way to wake up and stay awake all over the world. Categorised as Agriculture

Soft Product. Arabica and Robusta are the two famous types of coffee beans with majority of the

coffee plantation taking place in African continent and Brazil. The price of the coffee saw heavy

movements during the seasonal change especially the arrival of winter season and is a common

known fact that the price of the coffee is highly volatile for a short period.

(13)


With the onset of winter season, coffee prices saw a lot of volatility and prices soar to its highest in

18 months period amid the low cultivation in brazil due to weather disturbances.

Our trade

1 future contract at the rate of $1.6455/pound with a contract involving 37500 pound of coffee was

purchased on 3rd November and was sold on the same day at $1.67575/pounds thus benefitting

from the price volatility creating a total profit of $405.5700

Facebook Inc


11-03-2016

Facebook Inc 75 Market - Buy OPTIONS $0.6500 -$4,393.7100

11-03-2016

Facebook Inc 75 Market - Sell OPTIONS $0.0000 $0.0000

11-03-2016

Facebook Inc. 7500 Market - Sell EQUITIES $120.0000 $900,000.0000

11-03-2016

Facebook Inc. 7500 Market - Cover EQUITIES

$121.7800 -$823,178.9900

11-03-2016

Facebook Inc. 7500 Short Proceeds EQUITIES

$121.7800 $0.0000

FB1604W120 = 75 Put option purchased for December 2016, expiration at the strike price of $120

Profit Loss

Introduction:

Facebook offers digital services to its users and has a unique model based on personal

communication and contacts of people through mobile and internet. The company has various

products under its wings such as Facebook.com website, Messenger, WhatsApp etc. and according

to a survey it connects around 1.3 billion people around the globe. The company earns its revenues

through the advertisements bundled in these services. The company has a high revenue model with

very less expenses and thus is a highly profitable entity.


The company’s quarterly result was to be declared on 2nd November and hence the stock was




Our trade:

75 Facebook put options (right to sell) expiring in December 2016 was purchased and the option was

exercised and the 7500 resulting equities (75 options contracts) were sold subsequently at $900,000

and to cover the shortfall Equities were covered from the market resulting in a profit of $900,000 –

(4394 +823179) = $ 72427 (figures rounded off).

Alphabet Inc


Transaction Amount

11-03-2016

Alphabet Inc 5 Market - Buy OPTIONS $6.9000 -$3,109.4000

11-03-2016

Alphabet Inc 5 Market - Sell OPTIONS $6.4000 $2,884.0800

GOOGL1604K785: Call option expiring in November 2016 at the ticker price of $785

Profit Loss

Introduction:

Alphabet Inc is a holding company of google and various products associated with google. It basically

offers advertisement solutions to various industry and is the prime holding company of google.


As google was expected to launch its new line of Pixel phones, also the failure if Samsung

Smartphones during the prime festival times, the stock was expected to rise and I strived to take out

benefit of speculation in such volatile situation observing the behaviour and market reactions. (16)

Our trade:

5 call options (Right to Buy) were purchased on 3rd November for November expiry at the premium

of $6.9000/share and instead of exercising the option was sold at a loss to prevent magnifying our

losses.


Transaction Amount

11/3/2016 Apache Corp 100 Market - Buy OPTIONS $0.5300 -$4,776.7500

11-03-2016

Apache Corp -100 Market - Sell OPTIONS $0.0000 $0.0000

11-03-2016

Apache Corporation

-10000 Market - Sell EQUITIES $56.5000 $565,000.0000

11-03-2016

Apache Corporation

10000 Market - Cover EQUITIES $57.1300 -$514,898.0700

11-03-2016

Apache Corporation

10000 Short Proceeds EQUITIES $57.1300 $0.0000

APA1604W56.5 = Put option expiring in December 2016 at the strike price of $56.5

Profit Loss

Introduction

Apache corporation is an international energy company involved in developing and

producing oil gas fields, gas exploration, drilling of oil wells and the company has its major

operations in United states and Canada(17)


The company’s quarterly result was to be declared on 3rd November and hence the stock was




Our trade:

100 put options were purchased at $0.5300 premium and the options were exercised and the

resulting equities (10000) were sold at a cost of $565,000 and subsequently to fill the deficit the

equities were purchased from the market at $514,898.0700 resulting in a profit of 565000 – (4777

+514898) =45325 (figures rounded off).

General Electric co.


Transaction Amount

11-03-2016

General Electric Co

100 Market - Buy OPTIONS $0.3600 -$3,244.5900

11-08-2016

General Electric Co

100 Market - Sell OPTIONS $1.1800 $10,684.4900

GE1611K28.5 = Call option expiring in November 2016 at the strike price of $28.5

Profit Loss

Introduction

General electric company established in 1982 (Ticker GE. N on NYSE), popularly called GE, is an

American multinational giant with its head office in Boston and having presence in 180 countries

with the net revenue of approx. $ 279 billion The company has diverse business operations, the

primary being production of Industrial equipment for a range of sectors including:

Power (Gas turbines, and Nuclear Power plant and Distribution and Management systems)

Aviation (Jet engines, Aircraft Maintenance and Aircraft systems)

Finance (Consumer and Industrial finance)

Oil and Gas Sector

Consumer electrical products

Digital services

Health care systems (Critical Medical imaging systems)


Amid the US presidential elections GE was considered as a safe bet to avoid market fluctuations by

many analysts as the company is highly diversified and operates in core sectors affecting the

economy, hence GE was purchased to avoid any volatility.

Our trade:

100 GE call options (right to buy) were purchased with the premium of $0.3600/stock, however,

instead of exercising the Put option, the option was sold resulting in a profit of $10684 -$3244 =

$7440.

REFERENCES

(1) Bennett (2016) Definition of ‘derivatives’ - the economic times. Available at:

http://economictimes.indiatimes.com/definition/derivatives

(2) Buffett, W. (no date) Warren Buffett quote. Available at:

http://www.azquotes.com/quote/40655

(3) Hull, J. C. (2005). Options, futures, and other derivatives (6th ed.). Harlow, United Kingdom:

Pearson, Prentice Hall.

(4) Editorial, R. (2016) , company profile. Available at:

http://www.reuters.com/finance/stocks/companyProfile?symbol=UL

(5) DailyFX (no date) GBP/USD. Available at: https://www.dailyfx.com/gbp-usd

(6) Samson, R. (2016) Hammond, inflation data help British pound hit fresh multi-day best

against Euro and dollar. Available at: https://www.poundsterlinglive.com/gbp-live-

today/5607-gbp-to-eur-and-usd-inflation

(7) What are E-Mini Dow futures? (2008) Available at:

http://www.minidowfuturestrader.com/innerpage.php?pageid=16

(8) Leswing, K. (2016) Apple shares sink on first annual drop in revenue since 2001. Available at:

http://uk.businessinsider.com/apple-q4-2016-earnings-2016-10?r=US&IR=T

(9) Limited, F.M. (2016) Brent Oil price. Available at:

http://www.investing.com/commodities/brent-oil

(10) Editorial, R. (2016) company profile. Available at:

http://www.reuters.com/finance/stocks/companyProfile?symbol=AYR

(11) 2016 (2005) Gold investment. Available at: https://www.bullionvault.com/guide/gold/Gold-

investment

(12) Investing in copper (2006) Available at: https://dailyreckoning.com/investing-in-copper/

(13) Giovannoni, G. (2009). ResearchSpeak & NewsSpeak: Coffee glorious coffee. Retrieved

November 18, 2016, from http://multiple-sclerosis-

research.blogspot.com/2016/03/researchspeak-newsspeak-coffee-glorious.html

(14) Retrieved November 18, 2016, from http://money.usnews.com/investing/articles/2016-02-

04/give-your-portfolio-a-jolt-with-coffee-investments

(15) Editorial, R. (2016, November 16). Company profile for ${Instrument_CompanyName}.

Retrieved November 18, 2016, from

http://in.reuters.com/finance/stocks/companyProfile?symbol=FB.O

(16) Brewis, M. (2016, October 20). Google Pixel phone preview Retrieved from

http://www.pcadvisor.co.uk/new-product/mobile-phone/google-pixel-uk-release-date-

price-new-google-phone-features-specs-htc-onsale-3624629/

(17) Retrieved November 18, 2016, from

http://www.reuters.com/finance/stocks/companyProfile?symbol=APA.N

http://economictimes.indiatimes.com/definition/derivatives

http://www.azquotes.com/quote/40655

http://www.reuters.com/finance/stocks/companyProfile?symbol=UL

https://www.dailyfx.com/gbp-usd

https://www.poundsterlinglive.com/gbp-live-today/5607-gbp-to-eur-and-usd-inflation

https://www.poundsterlinglive.com/gbp-live-today/5607-gbp-to-eur-and-usd-inflation

http://www.minidowfuturestrader.com/innerpage.php?pageid=16

http://uk.businessinsider.com/apple-q4-2016-earnings-2016-10?r=US&IR=T

http://www.investing.com/commodities/brent-oil

http://www.reuters.com/finance/stocks/companyProfile?symbol=AYR

https://www.bullionvault.com/guide/gold/Gold-investment

https://www.bullionvault.com/guide/gold/Gold-investment

https://dailyreckoning.com/investing-in-copper/

http://multiple-sclerosis-research.blogspot.com/2016/03/researchspeak-newsspeak-coffee-glorious.html

http://multiple-sclerosis-research.blogspot.com/2016/03/researchspeak-newsspeak-coffee-glorious.html

http://money.usnews.com/investing/articles/2016-02-04/give-your-portfolio-a-jolt-with-coffee-investments

http://money.usnews.com/investing/articles/2016-02-04/give-your-portfolio-a-jolt-with-coffee-investments

http://in.reuters.com/finance/stocks/companyProfile?symbol=FB.O

http://www.pcadvisor.co.uk/new-product/mobile-phone/google-pixel-uk-release-date-price-new-google-phone-features-specs-htc-onsale-3624629/

http://www.pcadvisor.co.uk/new-product/mobile-phone/google-pixel-uk-release-date-price-new-google-phone-features-specs-htc-onsale-3624629/

http://www.reuters.com/finance/stocks/companyProfile?symbol=APA.N

Economy & Finance

Derivatives assignment