Commodity Future Market

SITUATION:
In this assignment you have the chance to have a little fun and learn something about price discovery, price determination, and commodity futures markets along the way. The goal – make money by speculating in the commodity futures market! The rules – there are many! Keep reading to find out how to make money and turn in an outstanding assignment. By the way, there will be a prize for the individual who makes the most money and does not incur any penalties!

RULES OF THE GAME:

1. You are a speculator whose objective is to make money by trading futures.
2. You can only speculate in one market for the remainder of the semester. You may choose either Corn (MAR17 contract) or Lean Hogs (FEB17 contract).
3. You must initiate an order and take a position in the futures market by midnight of Tuesday, November 8, 2016. You may choose to first either buy or sell a futures contract based on your price expectations. For instance, if you choose to speculate in corn, you would buy a futures contract first if you think that the price will be going up over the next 3 to 4 weeks. Alternatively, you would sell a futures contract first if you think the price will be going down. The goal is to make money by either first buying low, then selling high, or by first selling high, then buying low! Failure to take a position in the market by midnight of Tuesday, November 8, 2016, will lead to a 5-point penalty on the assignment.
4. By midnight of Friday, December 2, 2016, you must offset your original position for a “round turn”. Recognize that this is the last possible day to offset your position, but you can choose to offset your position at any time following the day of your initial trade. Failure to offset your position results in a 5-point penalty and we will offset your position for you.
5. This assignment can be done individually or with a partner.
a. If this assignment is done individually, at least one round turn is required, but you may complete up to three round turns.
b. If this assignment is done with a partner, then the Partnership must decide which one commodity to trade and each partner must individually perform at least one round turn on his/her own D2L account. However, the Partnership may complete up to four round turns. If each partner does not individually trade, then the Partnership will be assessed a 5-point non-compliance penalty. See “Contract for Partnership: Commodity Futures Project” if you plan to do this assignment with a partner.
6. There is a $45 broker fee for each “round turn” (buy/sell combination) completed. However, you may not begin a new round turn until you have closed your first one and you must have at least one trading day between your opening trade and your closing trade.
7. You are only trading one (1) contract;
8. All trades are based on the settlement price of the day the trade is initiated, regardless of the time of day you actually make the trade. For instance, if you make a trade on Friday, November 11, 2016, you will receive the settlement price for Friday, November 11. However, if you make a trade over the weekend, you will receive Friday’s settlement price.

LOGISTICS:

1. All “orders” must be submitted via the D2L system. To do so (1) go to the Assessments tab; (2) click on Quizzes; (3) click on Futures Contract Trading Order; (4), take the “quiz” to place your order, and (5) make sure you submit your order at the end of the quiz.
2. Once your order has been filled by your broker, you may view it. This may take up to 48 hours. To view your order, follow steps (1) and (2) noted above. Once you see the Futures Contract Trading Order, do not click on it, but instead click on the down arrow next to it and choose Submissions. Your order shows as an Attempt. Open the Attempt to view your order. The date and price for your order will be posted in the feedback section of question #4. Note: you will need to expand the view feedback option to see it.
3. You will need to keep a daily record of settlement prices in order to construct the graph required for this assignment. Settlement prices are required from Thursday, November 3, 2016 – Friday, December 2, 2016, regardless of what day you trade. Settlement prices can be found daily on-line at cmegroup.com as well as in some print publications such as The Wall Street Journal. It is strongly recommended that you check and record prices daily. Not only will this assure that you have the data for your graph, but it will also assist you in identifying price swings and trends that will be necessary to profit from your trade and to write your assignment. It is difficult to go back and fill in daily settlement prices when they are missing.
4. In addition to the Exchange site, you may also want to check out the following site for historical settlement prices, https://www.futures.tradingcharts.com/menu.html. Click the chart option for your commodity. The data appears in a box above the chart and the settlement price shows as “C” for close. By moving the cursor and clicking on a different date in the chart, the data will change in the box.

COMMODITIES AND SITES: The following contracts are eligible to be traded. Pay close attention to the month of the contract. Remember, you can only speculate in one market.

Commodity Contract Websites
Corn
MAR17
https://www.cmegroup.com/trading/agricultural/grain-and-oilseed/corn.html
Hogs
FEB17
https://www.cmegroup.com/trading/agricultural/livestock/lean-hogs.html
Notes: Corn and hogs: If the settle price for the futures contract is shown as 412’2, take the last digit and put it over eight – this makes it 412 and 2/8 cents, which is the same as $4.12 and ¼ cents/ bushel, or $4.1225/bu.; in some reporting instances, settlement price is listed as “settle” or “close”. Remember – lean hogs are quoted in pounds such that a quote on the CME of 47.950 means that the contract price per pound is $.47950 per pound or 47.950 cents per pound.
Remember:
• Your cover page should include your PID and ROW/SEAT NUMBER. Do not include your name.
• This assignment must be typed. Use double spacing, 12-point font, and 1-inch margins.
• The page requirement is 3-5 pages which includes the reference page and your graph.
• Be sure to staple the pages of your assignment together.
• This assignment is due at the start of class on Tuesday, December 6, 2016. Late assignments will be penalized 5 points/day and will not be accepted after 3:00 pm on Friday, December 9, 2016.
• You MUST submit an extra back-up electronic copy on D2L; you will find a drop box under the Assessments tab to do this. Failure to do so by Friday, December 9, 2016, will result in a 5-point penalty.
• This assignment is based on 100 points; the distribution is stated on the next page. Overall, this assignment accounts for 15% of your course grade.
• You will need to use the Internet for this assignment. A paper that demonstrates no research effort will not receive a passing grade.
• Don’t hesitate to ask your instructor for advice or assistance!

ASSIGNMENT REQUIREMENTS AND GRADING CRITERIA:

This assignment requires a written document, 3-5 pages in length, including your graph and a reference sheet. That leaves 1-3 pages for written text. The written document must contain the following information:

Criteria

Points
1.
Describe your game plan when you initiated your first trade. In your discussion, be sure to address:
• Why you decided on a particular commodity (corn or hogs) to pursue
• How you decided which side of the market to be on first (buy or sell)
• What was the trend in futures prices prior to your transaction? Your trend should cover at least one month prior to when this project started. Make sure you are specific and provide price ranges and dates for the trend.
10 pts.

2.

Provide an original, graphical representation of the settlement price (e.g., use Quatro Pro or Excel) for your contract from November 3 – December 2, regardless of when you initiate trades. Do not cut and paste a chart from the internet and submit it as your own. Use computer software to graph prices on the vertical axis and dates on the horizontal axis. Use a line, not a bar graph.
10 pts.
3.
Based on your chart, use economic analysis to explain two significant price movements/fluctuations you observed during the trading period.
• What were the important factors underlying the price fluctuations? For instance, if the futures contract price had been increasing and suddenly started decreasing, what economic factor(s) accounted for this? Discuss an actual, researched, specific event(s) that occurred in the market on this day that could have caused the price fluctuation. Clearly explain which side of the market was impacted – supply, demand, or both, and how the market was impacted (e.g., what happened to price?). Clearly indicate the date or time period you are addressing. NOTE: you are explaining why price changed on a specific day, not why prices have been high or low in this market.
• You will have to do research to answer the above questions and to explain what factors led to the price fluctuation. You will likely find useful information on your market on the exchange sites, bloomberg.com, reuters.com, in the Wall Street Journal, etc.
40 pts.
4.
Calculate and discuss your profits and losses. Did you win or lose money? Discuss whether or not the market behaved as you expected or if something unexpected happened. To earn full credit, also you must discuss how you calculated your profit/loss; don’t forget the $45 broker fee for each round turn you make. If you are trading as a PARTNERSHIP, the roundturn(s) of each partner must be discussed and the overall Partnership Profit would be the sum of each partner’s profit.
20 pts.
5.
Overall Professionalism:
• 5 points: proper use of citations
• 5 points: proper use of references, including a reference list
• 10 points for overall quality of the paper, including professionalism (for instance, a title page, proofreading, page numbers, layout, excellent graphic, and overall effort)
20 pts.

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