HOMEWORK ASSIGNMENT REQUIREMENTS
GOAL:
The goal of the project is to get you familiar with equity and derivative markets. Even though the project includes only US market, it should give you a good sense what a long-term stock trading is about. As future bachelors of finance, it should have no difference what stock market you are trading or analyzing. Also as future employees of a financial sector you will never know what market you will be trading/dealing/analyzing. Hence, ability to examine any market would be a great advantage of yours in the future.
INSTRUCTION:
Significant part of the project will take place on http://www.wallstreetsurvivor.com platform. That is why you will have to register and join Financial Market 2013 private league. You can:
use following link: http://www.wallstreetsurvivor.com/league/FINANCIALMARKET2013
use search box after going to “Leagues” menu (put “Financial Market 2013” into search box).
The password to join this private league is: market
The assignment is divided into 3 parts:
Buy 2 stocks, prepare report send them by e-mail until: 28th of December (11:59 PM, GMT +01:00).
Sell 1 stock short, prepare report send them by e-mail until: 10th of January (11:59 PM, GMT +01:00).
Opening 4 positions in options – Long Call, Short Call, Long Put, Short Put, provide data required, make calculations and show a profit function. Send the file until: 24th of January (11:59 PM, GMT +01:00).
TRADING RAPORT - Part 1
Explain what encouraged you to pick your stocks. Your reports should explain/support why you think your companies will grow significantly in the next few years (why they will have more customers and greater profit than ever). Write the information that have directly influenced your buying/selling short decision only. DO NOT WRITE ESSYES or an OCEAN OF USELESS TEXT – it will not guarantee any points. You can send 100 pages and still get 0 points if there will be no support/explanation of your trading decision. Bunch of general information about the company is useless here. Stick with your trading support and present it in a statistical form.
Below you can find a guideline/draft for your trading report. Not all of below will give you some trading support so you can skip some points instead of writing some useless stuff that has no connection with your trading support).
Describe selected company briefly. Give a short overview over products/services the company offers.
Analyze the industry/sector the company operates on:
Does it have a good prognosis (what is the future of this industry – will it grow or shrink).
Is there any seasonality (what might happen with demand/supply during the nearest seasons).
Specify the competition in this sector:
List competitors and describe briefly their plans for future development, major strengths and weaknesses. Evaluate position of your company (compering to competitors – is it a minor or major player in the industry/sector – pie chart of the sector/industry would be the best).
Execute Porter’s Five Forces analysis:
Buyers (bargaining power of customers)
Suppliers (bargaining power of suppliers)
Threat of substitute products or services
Threat of new entrants
Intensity of competitive rivalry (short summary of point 2c)
Analyze the company:
Are there any global connections (import/export) – is this important part of company – do we expect any changes regarding those international connections (like change of demand/supply in other countries).
Are there any national or local events/changes that might influence the performance of a company in a long term (legal, tax, environment etc.).
What major strengths/weaknesses/opportunities/threats (SWOT analysis) your company has (compare it with the nearest competition – what your company has so competitors don’t/what competitors have so your company doesn’t).
What is the financial background of the company:
Define where profits are coming from. If the revenue comes from a multiple sources (different industries/sectors/products) – list and arrange sources from the most important to the less (the best would be a pie chart).
Verify if there is any profit (net income) that the company can use for a future development.
Search through the latest company announcements – look for positive or negative events (provide the most relevant only - describe how those events may affect the future of your company).
Take a look on a historical charts:
Provide a long term price chart (last 5-years) and short term price chart (last year).
Specify 52-weeks maximum and minimum price.
Describe the chart from a fundamental perspective: Locate the most significant price drops and jumps and try to connect some events to them (what happened to the company/sector/industry that might cause the price to drop/jump).
Write a final support – list of reasons that encouraged you to buy/short sale the company (summary of points 2-3).
TRADING RAPORT - Part 2
Follow the rules form “TRADING RAPORT Part 1” but this time explain/support why you think your company will shrink significantly or even go into bankruptcy in the next few years (why the company will have less profits and customers). Your report should prove that the company condition will get worse over the next few years. Follow the same guideline but try to look for negative information regarding the future condition of a company.
PART 3: TRADING OPTIONS
Buy 4 options to your portfolio (Long call, Short call, Long put, Short put).
Every option should have different:
+ Underlying security (but you don’t need to describe those underlying securities just like you have been describing stocks (part 1 and 2) - chose whatever you want),
+ Expiration date.
Provide all the information listed below:
underlying security name and it’s price (when you were opening your position),
option type, option symbol, strike, multiplier, maturity date, number of days to maturity, premium paid,
was it OTM/ATM/ITM option (when you were opening your position),
intrinsic and time values (based on the premium from your transaction),
break event point.
For each option you have to make a line chart that should present profit function at option’s maturity. Include the multiplier and the premium you have paid/received.
TECHNICAL ASPECTCS:
Please don’t forget to provide your LOGIN and PASSWORD in the report.
Those information shall be the first ones that you will put in your report.
Name your files as follows: SURNAME_NAME_PART_X (where X is 1, 2 or 3 - depends what part are you sending).
Send Part 1 & 2 as .doc, .docx or .pdf file (your choice). The 3rd part should be prepared in .xls or .xlsx file.
BEAING LATE:
Points are going to be taken in case of being late with report. Number of points taken off depend on delay.
The maximum delay is 2 days after the deadline. Then assignment won’t be accepted.
POINTS:
The total number of points each student is able to get is 30.
One stock could give 8 points. Each option gives 1.50 point.
Each stock is valuated as follow: 8.00(pts) * Guideline requirements(%) * Support(%).
To get maximum number of points you need to have BOTH: Support and information required by the guideline.
Providing some data about the company (even 100 pages) without trading support will produce 0 points (8*100%*0%).
PLAGIARISM:
In case of plagiarism student gets 0 points from homework assignment and Professor Jajuga will consider to disqualify the students (which means: the course is failed).
Plagiarism includes:
1. Coping a large part of text from the websites
(YOU CAN copy all sort of statistical data, numbers, tables, graphs, charts (and I strongly encourage to do so) BUT YOU CANNOT copy large part of text).
2. Having the same sentences as one of the other students
(including previous editions of Financial Market homework assignments).
3. Using other student calculations or file (Part 3).
HINTS REGARDING PART 1 & PART 2
Don’t go into Financial Analysis (do not analyze financial statements) or Technical Analysis (do not make any forecasts based on past prices of stock). It will not give you extra points – that is not a part of Financial Market class.
ABOUT LONG-TERM TRADING
When picking your stock always think about the future of the business. Assume that the past is already reflected by the prices. You goal is not to pick the company that is “the best” today, but the company that will be the best in future.
As a long term traders you want to find whether the company will be able to generate more money in future. The company could achieve this goal in a multiple ways. They can bring new products to people/improve current ones, target new markets, increase advertisements, reduce the costs…. Every company is different and operates on specific markets.
Long term trading is about understanding the company – what gives them money. What factors increase the cash flows and decrease them. If you know that already – you can start to wonder whether those factors will appear in future. But that is a very general explanation. Every single trade is different and there are hundreds other features we should look at. But if you will analyze the company in details and get a conclusion that this business has great possibility and capabilities to dominate the industry, your investment should be safe - sooner or later market will reflect the increase of market share/cash flows/value of a company in market prices of stocks.
Opening position in stocks is just a beginning – after buying stocks you need to monitor the expansion of a company, validate your assumptions and track market situation continuously. If you will decide that there is no more space for a improvement or that the market situation has change (competitors/new technology) - it is time to sell the security.
PICIKING A STOCK 101
Try to avoid companies that produce and sell:
Energy products (oil, gas, electricity)
They are more difficult to analyze. Demand/supply and product prices are affected by a huge number of variables.
Analyzing those companies requires more attention, skills and work.
The analysis of a holding (multi-industry company) is pretty difficult since it may be tough to specify a leading source of revenue. So firstly you need to isolate the sectors that company operates on (arrange them from the most to least important) and then you can analyze them one by one.
Try not to buy the share of companies that are selling dreams only. So they do not produce anything yet and giving you the hope of delivering a revolutionary products. For example biotechnology or some pharmaceutics – many of them are trying to find a cure for something (ex. cancer) - but only one of might succeed (if it’s even possible) and deliver the product. The time for delivering a medicine is counted in years (research – getting government approvals – testing the medicine…. sometimes it takes dozen of years). If such a company is not selling any other products (does not have any source of regular income) it will probably go into bankruptcy in the meantime – the cost of delivering a medicine to the people is dramatically high. If you will pick the right company your success will be great but just remember that the risk is huge here.
Last – if you do not understand the industry/business/company – skip the stock. Try to stick with the industries you do understand because you are using them every day and you do know a lot about them. In case of students that might be: entertaining business (music, video/on-line games, social media), beverages, etc.