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Essay Available:
Pages:
5 pages/≈1375 words
Sources:
3 Sources
Style:
MLA
Subject:
Accounting, Finance, SPSS
Type:
Research Paper
Language:
English (U.S.)
Document:
MS Word
Date:
Total cost:
$ 28.08
Topic:

Trading Analysis of Two Assets within Equities and Agriculture Asset Classes

Research Paper Instructions:

Project overview
Futures and exchange-traded options are widely available for the following asset classes:
Equities
Agriculture
For each of these asset classes, please develop a well-reasoned hypothesis regarding the relative performance of two assets within the asset class. A relative performance trade (otherwise known as a pairs trade) does not require you to identify whether a given security will increase or decrease or value. Instead, it requires the following:
1. Identify two assets within the asset class.
2. Identify which of the two assets you believe will outperform the other asset.
3. Long the asset that you believe will outperform and short the asset that you believe will underperform.
You can learn more about relative performance/pairs trades here: http://www(dot)investopedia(dot)com/articles/trading/04/090804.asp.
Relative performance trade example
Here is an example of a relative performance trade.
Imagine you are forming a relative performance hypothesis related to the following two stocks in the apparel stores industry:
Gap, Inc.
TJX Companies
You do not know whether the overall stock market will increase in value or decrease in value in the future. But you do believe that whether markets increase or decrease in value, GAP, Inc. will outperform TJX Companies. Therefore, you should long Gap, Inc. and short TJX Companies. If you do so:
- If markets increase in value, your long position in Gap, Inc. will increase in value more than your short position in TJX Companies will decrease in value.
- If markets decrease in value, your long position in Gap, Inc. will lose less money than your short position in TJX Companies will earn in value.
Project details
For each hypothesis, please develop an exchange-traded derivatives trade that can monetize the view. Hence, derivatives that do not trade on exchanges, such as forwards, credit default swaps, or interest rate swaps, should not be used. Only use derivatives – do not use any cash products such as stocks or bonds.
Please assume that you have up to 1,000,000 to allocate to each asset class (for the purpose of premiums and/or margin).
Please assume that you will acquire the position sometime during this week and will hold it until sometime during the week of Module 12. Please do not develop dynamic strategies that require buying or selling between this week and the week of Module 12. So there will only be two relevant dates:
The date you enter the position, sometime this week.
The date you close out the position, sometime during the week of Module 12.
Some data sources from which you can identify information include:
www(dot)CBOE(dot)com
www(dot)CMEGroup(dot)com
www(dot)onechicago(dot)com
http://finance(dot)yahoo(dot)com/futures
http://finance(dot)yahoo(dot)com/options
You may also use the Bloomberg Terminals available at Pace's New York City and Pleasantville campuses.
Project deliverables
This project has two deliverables, as follows:
Deliverable 1: Please submit this week a report that describes your hypotheses and trades in detail (a link is provided below the project description through which you should submit Deliverable 1). Make sure that your plan is as realistic as possible, and incorporates all premiums and margin/collateral requirements. Your report should be 5 pages in length and should include the following sections:
- A single-page summary of your trades (1 page in total).
- A discussion of your hypotheses (1 separate page per trade).
- A discussion of the trade that you implemented, including detailed numbers with supporting evidence from your data source (1 separate page per trade).
I forgot let you know that the long and short position in this course is about forward contract, call option and put option.

Research Paper Sample Content Preview:
Student’s Name
Professor’s Name
Course
Date
Trading Futures
The Standard & Poor's 500 (S&P 500) index, which measures the stock performance of 500 large U.S. companies listed on the New York Stock Exchange, is the underlying asset for E-mini S&P 500 Future. The price of the contract is tied to the value of the underlying index, which means that when the index changes, so does the contract's price. The most-traded futures contract is the E-mini S&P 500 Future. Every day, up to 1.5 million contracts are traded (CME GROUP). E-mini S&P 500 Future is a futures contract, which means it is traded at an exchange. When a future is traded, the buyer and seller agree on a contract amount and a price. The buyer agrees to pay a certain price for the underlying asset, and the seller agrees to sell it at that price. The price of an E-mini S&P 500 Future is "floating," which means that it changes as the price of the underlying asset moves. The price of E-mini S&P 500 Future is based on the price of the Standard & Poor's 500 index.
The E-Mini S&P 500 VIX Future, on the other hand, is a futures contract that is traded electronically and follows the Chicago Board Options Exchange (CBOE) Volatility Index, which is a measure of the implied volatility of S&P 500 options. The VIX is often called the "fear index" because it tends to go up when there is a lot of uncertainty or volatility in the markets. The E-Mini S&P 500 VIX Future came out in 2004 and is one of the most popular derivatives contracts based on volatility. For this study, we bought the E-mini S&P 500 Future and sold the E-mini S&P 500 VIX Future.
E-Mini S&P 500
After over three months of fighting between Russia and Ukraine, and with economic headwinds continuing to increase, the forecast for the S&P 500 does not appear to provide any promising signs. As a result of this unfavourable macro environment, a decrease in the S&P 500 is anticipated to occur over the course of the next months (Bartolini). In addition, the Federal Reserve Bank is considering raising interest rates in response to the worrisomely high levels of inflation. The Russian invasion of Ukraine is predicted to have no positive effect on the economic situation, which will continue to deteriorate in tandem with the macro environment. As a direct consequence of the ongoing conflict, the cost of essential commodities, such as fuel and gas, continues to rise at an alarming rate. While there is a rise in demand, food staples such as wheat are becoming increasingly scarce (Bartolini). The rise in energy cost is one factor contributing to the high cost of manufacturing, and manufacturers are compelled to pass this expense on to their end customers. As a direct result of this, the prices of consumer items continue to rise while incomes stay unchanged. Because of the general drop in demand, the manufacturers will likely have little choice except to reduce their output. As a result, the income of the businesses that are representative of the general perspective of the economy in the United States will also decrease. It is anticipated that the dismal state of the economy will have a negative impact on the performance of the S&P 500. As a result...
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