Mitigate Risk project
Transcript of Mitigate Risk project
FBE 559StockTrack:
The Final Trade
Pravish Kappakadavath David Klug Uma Maheshwar Rao Nellori
Intro Final Portfolio Trading Strategies Conclusions
Intro Final Portfolio Trading Strategies Conclusions
Introduction
• Final Portfolio
• Trading Strategies
• Conclusions
Intro Final Portfolio Trading Strategies Conclusions
Final Portfolio (Dec 2rd)
Intro Final Portfolio Trading Strategies Conclusions
Final Portfolio (Dec 3rd)
• Value = $119 Million
• Buying Power = $157 Million
• % Return = 19.31%
• Approximately 100 trades
Intro Final Portfolio Trading Strategies Conclusions
Final Portfolio
• Sharpe Ratio = 0.69
• Alpha = 0.06
• Beta 0.35
Intro Final Portfolio Trading Strategies Conclusions
Trading Strategies - Stocks
• Jacobs Engineering
Intro Final Portfolio Trading Strategies Conclusions
OptionsBull Spread - GERN
Shorting the $3 strike price and buying the $2 strike price in Nov
Stock price went up with some major breakthroughs from the company
Calendar Spread – ANFSetup multiple spreads at different price pointsStock price went down – we didn’t make any
profitsWe could have tried a Collar / Straddle to prevent
losses
Intro Final Portfolio Trading Strategies Conclusions
Spot marketMetals – Gold GC/1
Shorting gold and long on futuresLimiting the upper cap, but hedge the lossesHedge positions in one metal with a basket of
other metals
Intro Final Portfolio Trading Strategies Conclusions
FuturesCrude Oil
Long on crude considering the upcoming winter demand
Supply glutOPEC decision to continue current supply levels –
changed our strategy to short crude
Bonds/T-notes/T-bond futures
Microsoft Corporate Bonds – 2015, 2016 & 2020Shorter Term maturities bond price dropped moreMSFT Bond yield vs price
Intro Final Portfolio Trading Strategies Conclusions
Bonds/T-notes/T-bond futures
T-notes – 2014, 2015 & 2020
Shorter Term maturities bond price dropped more
Could be due to projected interest rate, inflation
increases
Hedging with T-bond futures
Cost-effective hedging mechanism for bond
investors
$10,000 position can be hedged with a $4,000 T-
bond futures
Intro Final Portfolio Trading Strategies Conclusions
Foreign stocks
Hedge using index funds S&P500
Calculate number of shorts and buy inverse ETFs
Control the beta of the portfolio by changing the number of shorts
Portfolio Hedging
Indian stock market, depreciating RupeeRupee future contracts with banks
British stock exchangeLess currency risk
Intro Final Portfolio Trading Strategies Conclusions
Technology (Social Media & e-commerce
Stocks Invested: LinkedIn (LNKD), Twitter (TWTR). Facebook (FB), Ali Baba (BABA)Strategies used: buy shares; short options; straddle (volatile PF)
Highlights:Gain: 25% on LNKD and BABALoss: 30% on TWTR & 7% on TSLA (Overvalued)
Intro Final Portfolio Trading Strategies Conclusions
Retail Consumer Goods - SeasonalityStocks Invested: Costco (COST), Walmart (WMT), Starbucks (SBUX), Best Buy (BBY)Strategies used: Buy shares
Highlights:Over all Average Gain: 14% compared to 2.5% on S&PLesson: Speculated BestBuy would be a bust rather it was opposite
Intro Final Portfolio Trading Strategies Conclusions
Conclusions
Great opportunity to practice investment strategies.
Significant level of difference between our trading and the actual trading
There is no concrete strategy that will work under all market conditions.
Trades can be difficult to execute, either because of liquidity issues or hedging the trades requires active trading.
Domain expertise is critical, after speculation run dries up fundamentals rule
Option trading is a zero sum game, do not enter a position you cannot hedge
Intro Final Portfolio Trading Strategies Conclusions
Thank you