1. 1 | P a g e
Term Project
FINA-7350-040: Derivatives
Summer 2016
Professor: Lubina Zaidi
July 28, 2016
By: Alaa Sulaiman
2. 2 | P a g e
Short Sale:
Summer season is when tourism reaches its peak. So, since we are in Summer 2016, it seemed a very
good idea to invest in The Walt Disney Company (DIS) as it is number one entertainment destination
worldwide. Hence,after calculating the appropriate hedge ratio using the Black Sholes Morton simulation
(h = 0.706), I decided to hedge my position against declining DIS stock price if something unusual ought
to occur in the market. On 6/12/2016 using the formula V = h S – C as h = 0.706, S0 = $97.16, and C =
$3.60, I bought 706 shares of DIS at $97.16, and shorted 7 call option contracts at $3.60 premium to
cover my downward position. The 7 call option contracts had an exercise price of X = $97 with expiration
date 7/22/2016.
On 7/22/2016 I covered my short position on the 7 call contracts @ $3.75 each because I was obligated
to. DIS stock price increased by 0.55 bps as it went from S0 = $97.16 to ST = $97.71.
Protective Put:
On 6/12/2016 I created a protective put position by buying 100 shares of the Chinese online travel
commerce platform Qunar Cayman Islands Limited (QUNR) @ $28.98 in addition to a long position of 1
put contract with a premium of P = $2.00 and X = $30 exercise price expiring on 6/17/2016.
The put option expired on 6/17 without excision as it was out of the money (ST > X). Today on
7/22/2016, QUNR`s stock price increased to reach $29.80 generating a 2.83% return.
Covered Call:
On 6/12/2016 using the Black Sholes Morton simulation I calculated the hedge ratio to be h = 0.546, and
after applying it to the formula V = h S – C, I bought the 546 shares of Apple Inc. (AAPL) @ S = $98.82,
and sold 6 call options contracts @ C = $2.61 expiring on 7/22/2016 with exercise price X = $99.00.
As of 7/22 AAPL`s stock price reached ST = $98.66, therefore, the call option expired without exercising
as it became out of the money (ST < X).
3. 3 | P a g e
Bull Spread:
6/29/2016 was the day when I created a Southwest Airlines Co. (LUV) bull spread,S0 = $38.89. I have
longed one LUV call contract with the lowest exercise price X1 = $38.00 and a high call premium of C1 =
$4.90. Meanwhile, I shorted the call contract with the highest exercise price X2 = $39.50 and low call
premium of C2 = $0.30 (X1 < X2, C1 > C2); both call options share the same expiration date, 7/29/2016.
On 7/29 expiration date,if S0 = $38.89 went up, the call option with the lowest exercise price X1 = $38.00
will be exercised (ST > X1 in the money) and the call option with the highest exercise price X2 = $39.50
will expire without excision. However,the opposite is true if the stock price S0 went down.
Bear Spread:
On 6/29/2016 a bear spread was created on Pepsico, Inc. (PEP) with S0 = $103.12, where I longed the put
option with the highest exercise price X1 = $104.00 and a high put premium of P1 = $1.03, while at the
same time I went short on the put option with the lowest exercise price X2 = $102.00 and a low premium
P2 = $0.59; both put options expire on 7/29/2016.
On the expiration date of 7/29, if S0 = $103.12 went up, the put option with the lowest exercise price X2 =
$102.00 will be exercised (ST < X1 in the money) and the put option with the highest exercise price X1 =
$104.00 will expire without excision (ST > X1 out of money). However,the opposite is true if the stock
price S0 went down.
Straddle:
I created a straddle on Amazon.com, Inc. (AMZN) with S0 = $715.60 on 6/30/2016 by longing 2 call
options @ C = $33.75, and longing 2 put options @ P = $33.45. However, all calls & puts have the same
exercise price X = $715.00 and the same expiration date 7/29/2013.
As of 7/22/2016 few days prior to expiration AMZN has generated 32.03% return as the stock price has
reached St = $744.60. Therefore,if the stock price kept increasing until expiry date on 7/29 the 2 call
4. 4 | P a g e
options will be in the money and they`ll be exercised,and the 2 out of money put options will expire
without excision.
Futures:
The night before 6/23/2016, Brexit decision night, there were speculations that if Britain decided to leave
the European Union, the GBP (£) will decline. So, I made the call to short 20 GBP future contracts @
$1.42 each. Nevertheless,the GBP declined to $1.37 after Britain voted on leaving the EU, so on 6/24 I
decided to short additional 20 GBP future contracts.
So far, as of 7/22 I made a 5.76% return on this position, which turned out to be a good investment
decision.
ETFs:
On 6/4/2016 I bought 835 iShares Gold Trust (IAU) ETFs @ $12.01 each and 84 SPDR Gold Shares
(GLD) ETFs @ $118.91 each. Brexit had a positive impact on this investment position because as we
know when equity markets become unstable due to any sudden economic changes,investors tend to
switch their investments to a safer & more stable asset,and gold has always been investors safe haven. As
of 7/22 I gained a 6.24% return on IAU and 6.26% return on GLD.
However,after Brexit not only gold, but silver also seemed to be gaining more value. Thus, my 6/8
purchase of 617 iShares Silver Trust (SLV) @ $16.23 has generated 15.03% return as silver price
increased to $18.67 by 7/22/2016.
Conclusion:
Which positions exceeded your expectations? What factors created the gap?
IAU,GLD, and SLV positions have exceeded my expectations because I purchased these future contracts
to hedge my portfolio`s position against any fluctuations in the market because commodities usually are
negatively correlated with the equity markets.
5. 5 | P a g e
Which positions underperformed for you? What factors created the gap?
In my opinion, LUV has underperformed because oil prices have recovered in the past few months; at
least they returned to a $40.00 range. I created a bull spread position on LUV with the expectation that
Southwest`s stock value will increase as it did in the past 3 years,which were the company`s best years so
far. Unfortunately, the market doesn’t always move in the investor`s desired direction, and LUV stock
price declining proves it.
Overall conclusion on the project, what did you think ofyour experience speculating in
the futures market, etc.What are the key things you learned from your Stock-Trak
experience?
I have enjoyed this simulation project. It has given me a reallife experience on how to speculate in the
financial markets, and how hedging against markets surprises is a necessity. Meanwhile, I learned that
how to catch profit opportunities during a global economic distress should be a second hand game to any
financial analyst, which mostly could be obtained via derivatives.
Howwill your Stock-Trak experience influence your personal investing in the future?
Taking the Derivatives class was the greatest investment decision I made during the pursuit of my MS in
finance journey. This virtual reallife market simulation has taught me that studying the market and
covering all weak positions exposure against any sudden economic changes is the key skill to generate
positive returns even in a distress economic situation; otherwise almost any one with basic financial
background can make money during good economic times.
7. 7 | P a g e
Realized Gains
DATETIM
E
SYMB
OL
COMPANYN
AME
SECUR
ITY
TYPE
ORD
ER
SID
E
QUA
NTI
TY
MU
LTI
PL
YE
R
AVG
PRICE
EX
CH
A
N
GE
F
X
R
A
T
E
COST
PROFIT
LOSS PER
POSITION
ABBV Abbvie Inc. Equities Buy 396 1 62.65 US 1 $24,809.40
06/10/2016
@12:48
ABBV Abbvie Inc. Equities Sell -396 1 60.6 US 1 $23,997.60 ($811.80)
ACHC
Acadia
Healthcare
Company Inc.
Equities Buy 402 1 62.42 US 1 $25,092.84
06/10/2016
@12:45
ACHC
Acadia
Healthcare
Company Inc.
Equities Sell -402 1 62.17 US 1 $24,992.34 ($100.50)
BBBY
Bed Bath &
Beyond Inc.
Equities Buy 550 1 45.72 US 1 $25,146.00
06/10/2016
@12:47
BBBY
Bed Bath &
Beyond Inc.
Equities Sell -550 1 43.51 US 1 $23,930.50 ($1,215.50)
8. 8 | P a g e
BTI
British
American
Tobacco p.l.c.
(American
Depository
Receipts)
Equities Buy 204 1 123.48 US 1 $25,189.92
06/10/2016
@12:46
BTI
British
American
Tobacco p.l.c.
(American
Depository
Receipts)
Equities Sell -204 1 121.11 US 1 $24,706.44 ($483.48)
DLTR
Dollar Tree
Inc.
Equities Buy 274 1 91.72 US 1 $25,131.28
06/10/2016
@12:46
DLTR
Dollar Tree
Inc.
Equities Sell -274 1 91.2 US 1 $24,988.80 ($142.48)
GOOG Alphabet Inc. Equities Buy 35 1 724.95 US 1 $25,373.25
06/07/2016
@09:30
GOOG Alphabet Inc. Equities Sell -35 1 720.38 US 1 $25,213.30 ($159.95)
IMAX
Imax
Corporation
Equities Buy 796 1 31.55 US 1 $25,113.80
06/09/2016
@09:30
IMAX
Imax
Corporation
Equities Sell -796 1 30.03 US 1 $23,903.88 ($1,209.92)
9. 9 | P a g e
JBT
John Bean
Technologies
Corporation
Equities Buy 418 1 60.53 US 1 $25,301.54
06/07/2016
@12:24
JBT
John Bean
Technologies
Corporation
Equities Sell -418 1 59.98 US 1 $25,071.64 ($229.90)
KO
The Coca-Cola
Company
Equities Buy
1,20
4
1 45.53 US 1 $54,812.25
06/13/2016
@09:31
KO
The Coca-Cola
Company
Equities Sell -549 1 45.61 US 1 $25,039.89 $46.60
LUV
Southwest
Airlines Co.
Equities Buy 580 1 43.2 US 1 $25,056.00
06/21/2016
@09:30
LUV
Southwest
Airlines Co.
Equities Sell -580 1 40.44 US 1 $23,455.20 ($1,600.80)
MSFT
Microsoft
Corporation
Equities Buy 483 1 52 US 1 $25,116.00
06/10/2016
@12:48
MSFT
Microsoft
Corporation
Equities Sell -483 1 51.75 US 1 $24,995.25 ($120.75)
NFLX Netflix Inc. Equities Buy 250 1 100.31 US 1 $25,077.50
06/10/2016
@12:48
NFLX Netflix Inc. Equities Sell -250 1 94.21 US 1 $23,552.50 ($1,525.00)
10. 10 | P a g e
PSX Phillips 66 Equities Buy 307 1 81.58 US 1 $25,045.06
06/10/2016
@12:46
PSX Phillips 66 Equities Sell -307 1 80.17 US 1 $24,612.19 ($432.87)
SPY
SPDR S&P
500
Equities Buy 118 1 211.53 US 1 $24,960.54
06/10/2016
@12:46
SPY
SPDR S&P
500
Equities Sell -118 1 210.29 US 1 $24,814.22 ($146.32)
ULTA
Ulta Salon
Cosmetics &
Fragrance Inc.
Equities Buy 105 1 239.95 US 1 $25,194.75
06/10/2016
@12:46
ULTA
Ulta Salon
Cosmetics &
Fragrance Inc.
Equities Sell -105 1 239.26 US 1 $25,122.30 ($72.45)
WFC
Wells Fargo &
Co.
Equities Buy 498 1 50.59 US 1 $25,193.82
06/10/2016
@12:46
WFC
Wells Fargo &
Co.
Equities Sell -498 1 48.37 US 1 $24,088.26 ($1,105.56)
AAPL1
610R9
8
AppleInc Options Buy 100 100 0.64 US 1 $6,400.00
06/10/2016
@12:51
AAPL1
610R9
8
AppleInc Options Sell -100 100 0.01 US 1 $100.00 ($6,300.00)
11. 11 | P a g e
AMZN
1610F7
25
Amazon.com
Inc
Options Buy 15 100 11.4 US 1 $17,100.00
06/10/2016
@12:53
AMZN
1610F7
25
Amazon.com
Inc
Options Sell -15 100 0.15 US 1 $225.00 ($16,875.00)
DIS161
7F98.5
Walt Disney
Company
Options Buy 100 100 1.27 US 1 $12,700.00
06/10/2016
@12:53
DIS161
7F98.5
Walt Disney
Company
Options Sell -100 100 0.36 US 1 $3,600.00 ($9,100.00)
DIS162
2G97
Walt Disney
Company
Options Short -7 100 3.6 US 1 $2,520.00
06/20/2016
@03:59
DIS162
2G97
Walt Disney
Company
Options
Cove
r
7 100 3.75 US 1 $2,625.00 ($105.00)
IBM16
10R15
5
International
Business
Machines Corp
Options Buy 100 100 2.66 US 1 $26,600.00
06/10/2016
@12:51
IBM16
10R15
5
International
Business
Machines Corp
Options Sell -100 100 2.91 US 1 $29,100.00 $2,500.00
MCD1
622G1
22
McDonald's
Corp
Options Short -6 100 2.6 US 1 $1,560.00
06/22/2016
@09:37
MCD1
622G1
22
McDonald's
Corp
Options
Cove
r
6 100 1.98 US 1 $1,188.00 $372.00
12. 12 | P a g e
SBUX
1622G
54.5
Starbucks Corp Options Buy 5 100 2.43 US 1 $1,215.00
06/20/2016
@03:53
SBUX
1622G
54.5
Starbucks Corp Options Sell -5 100 2.25 US 1 $1,125.00 ($90.00)
XOM1
617R8
9
Exxon Mobil
Corp
Options Buy 100 100 0.89 US 1 $8,900.00
06/10/2016
@12:54
XOM1
617R8
9
Exxon Mobil
Corp
Options Sell -100 100 0.43 US 1 $4,300.00 ($4,600.00)
