FINN3003 Derivative Securities
Written Assignment (Individual)
Semester 1, 2025
Weight: This assignment is worth 25% of the total assessment for the unit. Refer to the unit guide on Canvas.
Total Marks: 25
Due time and date: 11:59pm Sunday, Week 10
Important notes:
1. You need to use the last digit of your student ID to get the correct version of the task requirements in part I.
2. Some students may need to start trading (i.e. collecting futures price information) as soon as Monday 31 March 2025, so it is important that you review the assignment task and get started right away.
3. To perform. simulated trading, you will need regularly collect/keep a record of actual market price information on related derivative securities from the ASX website/FACTSET. You must use the previous (last) settlement price of relevant derivative contract, which is usually listed on the ASX website at the end of the trading day or on the next trading date.
Below are the links to pricing information on ASX website:
· Trading Prices of Short-term Derivatives on ASX: https://www2.asx.com.au/markets/trade-our-derivatives-market/derivatives-market-prices/short-term-derivativesLinks to an external site.
· Bond Derivatives on ASX: https://www2.asx.com.au/markets/trade-our-derivatives-market/derivatives-market-prices/bond-derivativesLinks to an external site.
· Index Derivatives on ASX: https://www2.asx.com.au/markets/trade-our-derivatives-market/derivatives-market-pricesLinks to an external site.
Submission Instructions:
1. Maximum word length: 1500 words.
2. You need to submit the assignment in PDF/MS Word format, with an assignment cover sheet included, via Turnitin by the due date.
3. In addition, an Excel file with supporting calculations must be submitted online to Assignment_Supporting Excel File link on Canvas by the due date. You will need to include your student ID and your name in the Excel file name (for example, cxxxxxxx_FirstName_LastName). The word file should be a stand-alone report which will be marked. The Excel spreadsheet will also be reviewed. It must be submitted so that your working steps can be checked as required.
4. You may make reasonable assumptions in solving the problem (if necessary).
5. Submission by other means (email/hard copy) or forms (scanned copy) will attract no marks.
Penalties:
1. In the case of late submission without an approved extension of time, a penalty of 10% will apply for each day the assignment item is late.
2. Penalties will also apply if academic misconduct is found (refer to the Course Outline for more information).
Futures and Options Trading Assignment - Part I and Part II
Part I information
Part I of the assignment is worth 15 marks. 5 marks will be awarded for performing simulated trading using correct logic and pricing information; and for demonstrating an understanding of speculation strategies using the 90-day bank bill futures contract. 10 marks will be awarded for performing simulated trading using correct logic and pricing information; and for demonstrating an understanding of hedging strategies and evaluation of hedging performance using the SPI200 futures contract.
For this part, you need to use the last digit of your student ID to get the correct version of the task requirements set out below. If the last digit of your student number is 1 or 2, your instructions are Set A; if the last digit of your student number is 3 or 4, your instructions are Set B; if the last digit of your student number is 5 or 6, your instructions are Set C; if the last digit of your student number is 7 or 8, your instructions are Set D; and if the last digit of your student number is 9 or 0, your instructions are Set E.
To perform. simulated trading, you will need regularly collect/keep a record of actual market price information on related derivative securities from the ASX website/FACTSET. You must use the previous (last) settlement price of relevant derivative contract, which is usually listed on the ASX website at the end of the trading day or on the next trading date.
Below are the links to pricing information on ASX website:
· Trading Prices of Short-term Derivatives on ASX: https://www2.asx.com.au/markets/trade-our-derivatives-market/derivatives-market-prices/short-term-derivativesLinks to an external site.
· Bond Derivatives on ASX: https://www2.asx.com.au/markets/trade-our-derivatives-market/derivatives-market-prices/bond-derivativesLinks to an external site.
· Index Derivatives on ASX: https://www2.asx.com.au/markets/trade-our-derivatives-market/derivatives-market-pricesLinks to an external site.
Part I instructions
You are required to provide a report on all of your trading activity and an Excel file demonstrating all supporting calculations.
The following will be your trading instructions over coming weeks:
Part I - Set A
Trading in the 90-day bank-accepted bill futures contract
On Monday 31 March 2025, you will be required to enter into five June 2025 90-day bank-accepted bill futures contracts. You may enter into these contracts as a buyer or as a seller.
Whether you enter into these contracts as a buyer or a seller will depend on your expectations as to the likely direction of short-term interest rates. You should state a logical basis for entering into these contracts as a buyer or seller. For example, you might speculate that short-term interest rates are likely to rise or fall. Note that the basis of your speculation is of lesser importance here than is demonstrating that you understand fully the nature of the transactions that you enter into.
On Monday 28 April 2025, you must close out your position and do so at the settlement price of the June 2025 90-day bank-accepted bill futures contract.
Using the settlement price of the June 2025 90-day bank-accepted bill futures contracts on the days that you trade, detail your financial position after you have entered and evaluate your trading performance.
Hedging with the SPI200 futures contract
On Monday 31 March 2025, you will be notified that your company has a reasonably broadly based portfolio of Australian shares valued on that date at $70,587,239. You will be required to seek protect the value of that portfolio as the company intends to liquidate the portfolio. You will seek to do this by entering into a number of June 2025 SPI200 futures contracts as either a buyer or a seller.
On Monday 28 April 2025, you will be notified that the portfolio of shares has been sold for $75,987,431. The increase in the value of the portfolio was largely due the fact that it was not as broadly based as you had been told, and two companies that formed a large part of the portfolio had been subject to takeover offers during the period.
You must now close out your position and do so at the settlement price of the June 2025 SPI200 futures contract.
Provide a report how the hedge performed and explain why you could not achieve a perfect hedge. Show all related calculations to demonstrate all relevant factors attributable to an imperfect hedge in this case.
Part I - Set B
Trading in the 90-day bank-accepted bill futures contract
On Monday 31 March 2025, you will be required to enter into six June 2025 90-day bank-accepted bill futures contracts. You may enter into these contracts as a buyer or as a seller.
Whether you enter into these contracts as a buyer or a seller will depend on your expectations as to the likely direction of short-term interest rates. You should state a logical basis for entering into these contracts as a buyer or seller. For example, you might speculate that short-term interest rates are likely to rise or fall. Note that the basis of your speculation is of lesser importance here than is demonstrating that you understand fully the nature of the transactions that you enter into.
On Tuesday 29 April 2025, you must close out your position and do so at the settlement price of the June 2025 90-day bank-accepted bill futures contract.
Using the settlement price of the June 2025 90-day bank-accepted bill futures contracts on the days that you trade, detail your financial position after you have entered and evaluate your trading performance.
Hedging with the SPI200 futures contract
On Monday 31 March 2025, you will be notified that your company has a reasonably broadly based portfolio of Australian shares valued on that date at $60,587,239. You will be required to seek protect the value of that portfolio as the company intends to liquidate the portfolio. You will seek to do this by entering into a number of June 2025 SPI200 futures contracts as either a buyer or a seller.
On Tuesday 29 April 2025, you will be notified that the portfolio of shares has been sold for $65,987,431. The increase in the value of the portfolio was largely due the fact that it was not as broadly based as you had been told, and two companies that formed a large part of the portfolio had been subject to takeover offers during the period.
You must now close out your position and do so at the settlement price of the June 2025 SPI200 futures contract.
Provide a report how the hedge performed and explain why you could not achieve a perfect hedge. Show all related calculations to demonstrate all relevant factors attributable to an imperfect hedge in this case.
Part I - Set C
Trading in the 90-day bank-accepted bill futures contract
On Monday 31 March 2025, you will be required to enter into five June 2025 90-day bank-accepted bill futures contracts. You may enter into these contracts as a buyer or as a seller.
Whether you enter into these contracts as a buyer or a seller will depend on your expectations as to the likely direction of short-term interest rates. You should state a logical basis for entering into these contracts as a buyer or seller. For example, you might speculate that short-term interest rates are likely to rise or fall. Note that the basis of your speculation is of lesser importance here than is demonstrating that you understand fully the nature of the transactions that you enter into.
On Wednesday 23 April 2025, you must close out your position and do so at the settlement price of the June 2025 90-day bank-accepted bill futures contract.
Using the settlement price of the June 2025 90-day bank-accepted bill futures contracts on the days that you trade, detail your financial position after you have entered and evaluate your trading performance.
Hedging with the SPI200 futures contract
On Monday 31 March 2025, you will be notified that your company has a reasonably broadly based portfolio of Australian shares valued on that date at $50,587,239. You will be required to seek protect the value of that portfolio as the company intends to liquidate the portfolio. You will seek to do this by entering into a number of June 2025 SPI200 futures contracts as either a buyer or a seller.
On Wednesday 23 April 2025, you will be notified that the portfolio of shares has been sold for $55,987,431. The increase in the value of the portfolio was largely due the fact that it was not as broadly based as you had been told, and two companies that formed a large part of the portfolio had been subject to takeover offers during the period.
You must now close out your position and do so at the settlement price of the June 2025 SPI200 futures contract.
Provide a report how the hedge performed and explain why you could not achieve a perfect hedge. Show all related calculations to demonstrate all relevant factors attributable to an imperfect hedge in this case.
Part I - Set D
Trading in the 90-day bank-accepted bill futures contract
On Monday 31 March 2025, you will be required to enter into six June 2025 90-day bank-accepted bill futures contracts. You may enter into these contracts as a buyer or as a seller.
Whether you enter into these contracts as a buyer or a seller will depend on your expectations as to the likely direction of short-term interest rates. You should state a logical basis for entering into these contracts as a buyer or seller. For example, you might speculate that short-term interest rates are likely to rise or fall. Note that the basis of your speculation is of lesser importance here than is demonstrating that you understand fully the nature of the transactions that you enter into.
On Thursday 24 April 2025, you must close out your position and do so at the settlement price of the June 2025 90-day bank-accepted bill futures contract.
Using the settlement price of the June 2025 90-day bank-accepted bill futures contracts on the days that you trade, detail your financial position after you have entered and evaluate your trading performance.
Hedging with the SPI200 futures contract
On Monday 31 March 2025, you will be notified that your company has a reasonably broadly based portfolio of Australian shares valued on that date at $40,587,239. You will be required to seek protect the value of that portfolio as the company intends to liquidate the portfolio. You will seek to do this by entering into a number of June 2025 SPI200 futures contracts as either a buyer or a seller.
On Thursday 24 April 2025, you will be notified that the portfolio of shares has been sold for $45,987,431. The increase in the value of the portfolio was largely due the fact that it was not as broadly based as you had been told, and two companies that formed a large part of the portfolio had been subject to takeover offers during the period.
You must now close out your position and do so at the settlement price of the June 2025 SPI200 futures contract.
Provide a report how the hedge performed and explain why you could not achieve a perfect hedge. Show all related calculations to demonstrate all relevant factors attributable to an imperfect hedge in this case.
Part I - Set E
Trading in the 90-day bank-accepted bill futures contract
On Monday 31 March 2025, you will be required to enter into five June 2025 90-day bank-accepted bill futures contracts. You may enter into these contracts as a buyer or as a seller.
Whether you enter into these contracts as a buyer or a seller will depend on your expectations as to the likely direction of short-term interest rates. You should state a logical basis for entering into these contracts as a buyer or seller. For example, you might speculate that short-term interest rates are likely to rise or fall. Note that the basis of your speculation is of lesser importance here than is demonstrating that you understand fully the nature of the transactions that you enter into.
On Tuesday 22 April 2025, you must close out your position and do so at the settlement price of the June 2025 90-day bank-accepted bill futures contract.
Using the settlement price of the June 2025 90-day bank-accepted bill futures contracts on the days that you trade, detail your financial position after you have entered and evaluate your trading performance.
Hedging with the SPI200 futures contract
On Monday 31 March 2025, you will be notified that your company has a reasonably broadly based portfolio of Australian shares valued on that date at $30,587,239. You will be required to seek protect the value of that portfolio as the company intends to liquidate the portfolio. You will seek to do this by entering into a number of June 2025 SPI200 futures contracts as either a buyer or a seller.
On Tuesday 22 April 2025, you will be notified that the portfolio of shares has been sold for $35,987,431. The increase in the value of the portfolio was largely due the fact that it was not as broadly based as you had been told, and two companies that formed a large part of the portfolio had been subject to takeover offers during the period.
You must now close out your position and do so at the settlement price of the June 2025 SPI200 futures contract.
Provide a report how the hedge performed and explain why you could not achieve a perfect hedge. Show all related calculations to demonstrate all relevant factors attributable to an imperfect hedge in this case.
Part II instructions
Speculation strategy using a pair of futures contracts
In this course, you have learned about different trading strategies that speculate on the price difference between a pair of futures contracts of your choice, namely straddle and spread. In this task, you are asked to employ one of the two strategies and perform. simulated trading using use futures contracts listed and traded on the ASX exchange.
You are required to open your trading position in the weeks starting on Monday 7 April 2025 or Monday 14 April 2025 and keep your position open for at least 2 weeks. In any circumstance, you will need to close your position by Fri 2 May 2025 at the very latest. You are required to answer the questions below to demonstrate your understanding of the strategy employed and its practical implementation.
Questions to answer
1) Discuss the nature of the trading strategy used? (1 marks)
2) Provide reasoning for your speculation of expected movements in the price/price difference of the pair of contracts? You should provide an analysis of relevant information/data to support your argument. (2 marks)
3) Discuss the logical basis for your trading position? (2 marks)
4) Using the settlement price of the relevant futures contracts on the ASX on the days that you trade, detail your financial position and evaluate the performance of your trading strategy. Provide reasoning for the profit/loss generated from your trading strategy. (5 marks)