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BFF5340 - Trading Assignment

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BFF5340 - Trading Assignment

Due date: 5pm Friday 15 Oct 20211. Overview This assignment requires you to trade futures and options for profits using Rotman Portfolio Manager (RPM), a virtual trading platform that allows simulated trading with real-time bid/ask prices. The aim is to provide exposure to a close to real world trading experience while testing your understanding of the various derivative instruments covered in the course. 2. Assignment requirements - First, open an RPM account following the instruction in Section 4 (RPM account opening). You have until the end of teaching week 2, which is 8 August, to complete the account opening. - Then, start practice trading to familiarise yourself with RPM. - Formulate a Trading Plan that suits your area of competency and/or interest while also guiding your decision making. Use the template at the end of this document. - The trading period for the assessment purpose commences on 16 August. On this day, your portfolio will get reset to the initial capital of $10,000,000 and portfolio performance will start accruing. - With the initial capital, you are required to conduct five (5) round-trip trades (each roundtrip consists of an opening trade and a closing trade) involving either futures or option contracts available in RPM. Opening and closing of say a bull spread would be considered 1 roundtrip trade although the trade consists of two options. - All positions must be closed prior to the end of the trading game. - For each of the required five trades, complete a Trade Journal of no more than 1 page in length, using the template at the end of the document - What to submit: (1) the Trading plan and (2) the five trade journals. - Due date is 5pm 15 October 2021 Australian Eastern Standard Time. Due to the time zone difference, and because it may take time to close a derivatives position, this means you need to start closing out all positions before the due date. - This is an individual assignment. However, you may (or may not) wish to discuss your trading ideas with your classmates. - Open RPM Account by 8 August Practice trading by 15 Aug Official trading 16 Aug-15 Oct Trading rules - You can trade any of the Futures and Options markets as you see in your RPM account. While RPM lists securities in various countries, this trading game is restricted to US markets to give you focus. - Key trading parameters are o Position limit (maximum percentage of portfolio value that can be invested in one position): 10% o Maximum fill order: 20% of daily volume. o Commission: $10/trade o Number of trades: 5. You can choose to trade up to 10 trades and submit the “best” five journals. By being selective, you are more likely to end up with a thoughtful process with hopefully a better outcome. 2 marks will be deducted if you make more than 10 trades o Since stock trading is not permitted in this assignment, do not exercise options. For ITM options that are yet to expire, if you wish to close out positions, sell them instead. For expiring ITM options, RPM will automatically settle by cash. 3. Marking This assignment is marked to 10 and contributes to 10% of the overall assessment. The marking scheme is as follows: - Up to 3 marks will be awarded on the basis of your Sharpe ratio ranking and total return ranking. The two criteria receive equal weighting. o 3 marks for traders with ranking in the top 20% o 1 mark for traders with ranking in the bottom 10% o 2 marks for the other traders o 0 mark for non-traders - Up to 2 marks will be given for the quality of your trading plan. The top mark will be awarded to those who (1) complete the trading plan template (2) clearly specify the market they want to focus on and explain why and (3) clearly articulate their process of selecting trades - Up to 5 marks will be given for the quality of your trade journals. The top mark will be awarded to those who (1) complete the trade journal template for all the trades, (2) select and execute trades in line with their trading plan, (3) provide a meaningful evaluation of the trade outcome. - 2 marks will be deducted if you make more than 10 trades What to submit 1. 1x Trading plan 2. 5x trade journals. 4. RPM account opening You are required to open an RPM trading account by the end of teaching week 2, which is 8 August. Instructions for creating an RPM account: o Download (and open) the software here: http://rpm.rotman.utoronto.ca/download/index.html This software will install onto Windows operating systems only. If you use an Apple device, you will need to load a version of Windows via Bootcamp onto your device (see instruction at https://support.apple.com/en-us/HT201468) A browser based platform is also available to use on ANY device (Windows/Apple/Laptop/Phone). However, the browser based platform does not have the full functionality of the PC based application. The web address for the browser based version of RPM can be found here: http://rpm.rotman.utoronto.ca/webtrader/login.aspx Either platform can access your single account. o To create your account: Click: NEW ACCOUNT: Tick: USE PREPAID ACCOUNT: Click: NO Input: • USERNAME through to LAST NAME. (Please use you authcate code as your username. i.e. mcheng008@student.monash.edu = “mcheng008”. Any errors in your user name and student number will result in the marking algorithm being unable to locate your trading activity and will most likely result in a zero grade – because we cannot find your trades. • You can use ANY password. • Dashes in ADDRESS, as seen below (We don’t want to know where you live) • Class code: BFF5340-2021-S2 • Class password: STARLab (In each case, you can only proceed when the green tick appears in the field) Click: SUBMIT IMPORTANT NOTE: 1. Please create ONE ACCOUNT for this unit only. If you make a mistake when you are creating your account, PLEASE EMAIL the chief examiner IMMEDIATELY, so that this can be changed. The cost of ONE licence fee (A$85.00) is included in your tuition fees. If you create more than one RPM account, you will be required to reimburse the university for the additional costs you have incurred. 2. If you have previously created an RPM account with your authcate (and now get an “account already exists” error), just add 1 to the username. Eg: mcheng008 becomes mcheng0081). 5. Learning to trade in RPM Refer to “RPM - Students - Quick Start Guide” and “RPM – Students – Advanced User Guide” – uploaded in the Trading Assignment folder under the Assessment tile. Tutorial 1 also provides a hands-on session on how to trade in RPM. 6. Getting help on RPM If you are experiencing a technical issue with the platform or are unsure how something works on RPM, 1. Browse the FAQ section available via “Help” on RPM Client. 2. If you can’t find the answer there, submit a ticket directly through “Help”, and RPM staff will be able to get back within the next 48 hours. 3. If RPM doesn’t resolve your query, contact your CE (binh.do@monash.edu) My Trading Plan Insert your name here 1. Trading goal What is your performance objective that is specific and measurable? E.g. Outperforms the S&P 500 index by 3% p.a. Achieve a total return of at least 12% p.a. net of commissions. 2. Trading markets What are the asset classes or markets that you have most knowledge of or are particularly interested in? You may want to be focused and specific. E.g. In the order of increasing focus: US equities → US large caps → US tech stocks, or Futures → Commodity futures → Energy futures. 3. Trading style Position trading (with positions held in weeks or months) Swing trading (with positions held in days) Or day trading.(positions closed within the day) 4. Targets Describe as clearly as possible the type of trades you will target. Ideally this should be drawn from established anomalies or patterns in the market. 5. Risk management - What are your trading rules to minimize permanent capital loss? Trade Journal – [Insert Ticker Symbol here] (roughly 1 page in length) 1. The trade: Describe the trade here. Eg: Long a short-dated bear spread on TSLA expiring 21 May 2021: long a put at 800 and short a put at 650. 2. Rationale: Provide a brief explanation or expectation that supports the trade. Eg: I believe the market is pricing perfection for Tesla. Forward PE of >500 is driven by retail investors unrealistically extrapolating demand for EVs. The next earnings update, expected late April 2021, is likely to disappoint. The bear spread is a less risky bearish bet than a naked put option 3. Stop loss What is the exit point at which the trade is to be closed to cut the loss? For long futures, a simple way is to set it at 7-10% below the current price. Similarly, for short futures, 7-10% above the current price. For option strategies with limited losses (long call/put, long straddle/strangle, long/short bull/bear spread), there is no need for specifying a stop loss for an automatic exit. 4. Trade sizing Specify the number of contracts you can trade such that the maximum loss does not exceed your risk tolerance. Provide detailed calculation used to arrive the number of contracts. 5. Actual trade Record the actual number of contracts traded and the actual price 6. Exit trade Indicate whether the position was exited at the stop loss or at expiry 7. Evaluation Comment on the outcome of the trade and whether the execution was in accordance to your trading plan.

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