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Finance & Structuring for DS

IEOR 4574

Spring  2022

Paper Trading Exercise 1

· I will quickly review the concepts and definitions of this homework at the start of the class.

· Yahoo Finance, Google Finance, and Bloomberg are sites where you can source data

·  If you have any question, please send it to the TA who will make a list of them and I will post the answers so all students can benefit..

· The grade of trading exercises is a function of investment performance

Ø You have a trading limit of $1,000,000.00

Ø Assume this amount accrues interest at the rate of 0.36%  Daily/Money 

Ø You have the option of not trading and your grade for this exercise will be the interest accrued in your account.

Ø Trading horizon starts on Monday Feb 14^th and any open position has to be closed at the close price of Friday February 18^th.

Ø You can go long only either MSFT (Microsoft) or Apple (AAPL) and you can do only ONE round trip.

Ø  The long position has to be fully paid from the above fund so there will be a limit on the number of shares that you can buy. The money left in the account after you pay for the shares will accrue interest at the above rate.

Ø If you decide to trade, you should send your order i.e. the stock and the size of the trade, to the TA before the market opens on Monday February 14^th.

Ø If your order is “market” you will buy at the opening price of Monday February 14^th.

Ø You can submit “limit” you should look at the high and low of everyday to determine if you are filled

Ø If you trade, you can also set “Stop-Loss,” “Take Profit,”  OCO (one cancels the other)

Ø Your grade for this exercise will be Interest Income + (Size of the trade/1,000,000) * Max( 50, 100* Return of your trade)

a- What would be your grade if you decide not to trade?

b- What would be your grade if you trade your limit and have a loss?

c- If you decide to trade

a. On an excel sheet Mark-To-Market your position everyday using the closing price of each day.

b. Determine your Maximum one day loss “Draw down”

c. If instead, you invest the fund in S&P 500 (SPY) using the closing prices of Monday February 14^th and flatten your position at the close of Friday February 18^th what would be your grade and what would be your maximum draw down?