FIN 356 Highly Correlated Stocks Trading Options Report
Project overview
Futures and exchange-traded options are widely available for the following asset classes:
- Equities
- Agriculture
For each of these asset classes, please develop a well-reasoned hypothesis regarding the relative performance of two assets within the asset class. A relative performance trade (otherwise known as a pairs trade) does not require you to identify whether a given security will increase or decrease or value. Instead, it requires the following:
1. Identify two assets within the asset class.
2. Identify which of the two assets you believe will outperform the other asset.
3. Long the asset that you believe will outperform and short the asset that you believe will underperform.
You can learn more about relative performance/pairs trades here: http://www.investopedia.com/articles/trading/04/090804.asp.
Please submit this week a report that describes your hypotheses and trades in detail (a link is provided below the project description through which you should submit Deliverable 1). Make sure that your plan is as realistic as possible, and incorporates all premiums and margin/collateral requirements. Your report should be 5 pages in length and should include the following sections:
– A single-page summary of your trades (1 page in total).
– A discussion of your hypotheses (1 separate page per trade).
– A discussion of the trade that you implemented, including detailed numbers with supporting evidence from your data source (1 separate page per trade).
here are some links to complete the project:
http://www.investopedia.com/articles/trading/04/090804.asp.
- www.CBOE.com
- www.CMEGroup.com
- www.onechicago.com
- http://finance.yahoo.com/futures
- http://finance.yahoo.com/options
For each hypothesis, please develop an exchange-traded derivatives trade that can monetize the view. Hence, derivatives that do not trade on exchanges, such as forwards, credit default swaps, or interest rate swaps, should not be used. Only use derivatives – do not use any cash products such as stocks or bonds.
