The deadline for this coursework is January 9th, 2024. The maximum length is 2000 words and the report should include Excel charts, tables as appropriate. In addition, students need to submit a single Excel file to support the calculations. The marks will be awarded based on the report. The Excel file will be used for verification purpose, but it will not be marked.

Question 1

Critically discuss the advantages and disadvantages of Payback, Accounting Rate of Return, Net  Present Value and Internal Rate of Return. Support your discussion using relevant literature. [20 Marks]

Question 2

You are required to obtain a series of equity option quotes from Bloomberg. You should take a screenshot and include this in your report. This can be achieved as follows on Bloomberg workstation:

Equity – SECF – Selector search for the stock – Option Monitor (OMON) – Select Maturity – Select the number of strikes.

You are required to:

a) Analyse the recent historical data of share price (volatility) and select three appropriate option trading strategies based on the analysis of the future direction of the share price (volatility);

b) Discuss the reason for your choice of each option trading strategy;

c) Draw the profit profile of each option trading strategy;

d) Obtain the breakeven points of each option trading strategy;

e) Calculate the maximum gain and maximum loss of each option trading strategy.

Note: For ease, assume a “deal” can be done mid-way between the bid and ask prices. If a bid and ask is not available, use the “last” price. The chosen strategies must NOT include simple long or short on puts or calls, and all strategies must be consistent with your future

view of the market. The following link might provide useful information for this question:

http://www.theoptionsguide.com/.

[40 Marks]

Question 3

You are given a notional amount of $250,000 which can be used to trade on the WTI crude oil futures.

You are restricted to the WTI crude oil market. The quote is the price in USD of WTI crude oil per barrel.

You should only trade the March 2024 contracts. You must trade for a minimum period of 10 consecutive working days (defined as “marking to market” on 10 occasions,i.e., having 10 settlement prices).

The holiday calendar is athttps://www.cmegroup.com/tools-information/holiday-

calendar.html - please plan ahead to ensure you will have 10 settlement prices as failure to  do so is deemed a fail. You can begin trading at anytime. Details of each of your trade must be entered into a table.

Historical data on the spot price of WTI crude oil are available at

https://www.macrotrends.net/2516/wti-crude-oil-prices-10-year-daily-chart.

Live (maybe a bit delayed) futures prices are also available on-line at

https://www.cmegroup.com/markets/energy/crude-oil/light-sweet-crude.html(if this link changes the steps are: www.cme.com – Markets – WRI Crude Oil).

You are required to trade on the GLOBEX prices, which you can find from the above link. GLOBEX is an electronic platform and so the price is constantly changing, although the most active trading period is during business hours Chicago time which is 6 hours behind GMT. At around 11 pm (GMT) the prices will disappear for around 15 minutes whilst a settlement (Sett) price is recorded. This is the price used to undertake the “marking to market” each day.

The table below shows how the prices are quoted on the CME website. You trade at the    “LAST” but your marking to market takes place at the Settlement Price. After 11 pm (GMT time) that day’s Settlement Price will appear as “PRIOR SETTLE” .

Other rules include:

i. Ignore the commission on futures contracts trading (assume that there is no commission when opening and closing positions).

ii. Margin requirements on futures contracts are (for ease we will assume maintenance = initial) $5,500 per contract.

iii. The contract size of the crude oil futures is 1,000 barrels.

iv. If you find that you have insufficient dollars to meet margin payments, you must close a futures position.

v. No borrowing is allowed.

vi. To minimise computation, cash may not be invested overnight in the money markets or invested in any other securities that earn a rate of return.

vii. Before you submit your work, you MUST closeout all of your futures positions. You will be penalised for fabricating trades to minimise losses and/or amplify profits.

Required:

i. Provide analysis (e.g., statistics, charts etc.) on the crude oil prices;

ii. Based on the analysis, discuss how to construct your trading strategy;

iii. Keep a record of your trades at a daily frequency throughout the trading period;

iv. Provide a table of a time series of dollar value and percentage rate of return of your portfolio at a daily frequency over the trading period;

v. Calculate the average daily percentage change in the value of your portfolio and the standard deviation of the daily percentage changes;

vi. Evaluate the value, profit, and riskiness of your portfolio and compare the performance of your portfolio with an appropriate benchmark.

vii. Reflect on what you have learned and what you might have done differently.

Note: Please use the template provided at the end of the document and feel free to add more rows if needed. [40 Marks]