Mitigate Risk project

FBE 559StockTrack:

The Final Trade

Pravish Kappakadavath David Klug Uma Maheshwar Rao Nellori

Intro Final Portfolio Trading Strategies Conclusions


Introduction

• Final Portfolio

• Trading Strategies

• Conclusions


Final Portfolio (Dec 2rd)


Final Portfolio (Dec 3rd)

• Value = $119 Million

• Buying Power = $157 Million

• % Return = 19.31%

• Approximately 100 trades


Final Portfolio

• Sharpe Ratio = 0.69

• Alpha = 0.06

• Beta 0.35


Trading Strategies - Stocks

• Jacobs Engineering


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


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


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


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


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


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)


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


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


Thank you

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Mitigate Risk project