As a sophisticated energy trader, you apply your knowledge to both crude oil and natural gas...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
As a sophisticated energy trader, you apply your knowledge to both crude oil and natural gas markets. Starting Jan 1st 2010 you decide to implement the following rules The day following expiry of the front month contract, you are going to go long the front month and short the 2nd month if the markets are in backwardation, and short the front month and long the 2nd month if the markets are in contango. You will hold the position to expiry unless the market flips the contango/backwardation condition. If this occurs you close the position out on this day and wait till the next expiry to re-enter the new contracts. You initially have $1 million to start-split equally across both commodities, and you will use this capital to back the positions. You setup the capital so that you never use more than 50% of the capital to try to avoid margin calls. Your account earns 50 basis points for capital not locked up in margin. The risk team at your custodian doesn't offer offsetting margin, but will only require you to post margin for the long-side of the position. The initial margin is 10% and the maintanance margin is 5% ● ● Calculate the total annualized return for the strategy over the period (answer in %) Calculate the dollar return for the oil and natural gas separately ($ in millions...first answer for oil, second for nat gas-comma separate your answer.....no parenthesis needed) How often were the markets in contango (as a % of the total) How profitable was the combined strategy in contango markets ($ in millions) How profitable was the combined strategy in backwardation ($in millions) How many total margin calls were there? As a sophisticated energy trader, you apply your knowledge to both crude oil and natural gas markets. Starting Jan 1st 2010 you decide to implement the following rules The day following expiry of the front month contract, you are going to go long the front month and short the 2nd month if the markets are in backwardation, and short the front month and long the 2nd month if the markets are in contango. You will hold the position to expiry unless the market flips the contango/backwardation condition. If this occurs you close the position out on this day and wait till the next expiry to re-enter the new contracts. You initially have $1 million to start-split equally across both commodities, and you will use this capital to back the positions. You setup the capital so that you never use more than 50% of the capital to try to avoid margin calls. Your account earns 50 basis points for capital not locked up in margin. The risk team at your custodian doesn't offer offsetting margin, but will only require you to post margin for the long-side of the position. The initial margin is 10% and the maintanance margin is 5% ● ● Calculate the total annualized return for the strategy over the period (answer in %) Calculate the dollar return for the oil and natural gas separately ($ in millions...first answer for oil, second for nat gas-comma separate your answer.....no parenthesis needed) How often were the markets in contango (as a % of the total) How profitable was the combined strategy in contango markets ($ in millions) How profitable was the combined strategy in backwardation ($in millions) How many total margin calls were there?
Expert Answer:
Answer rating: 100% (QA)
Crude Oil and Natural Gas Trading Strategy Analysis Methodology We simulated the strategy from Janua... View the full answer
Related Book For
Cost management a strategic approach
ISBN: 978-0073526942
5th edition
Authors: Edward J. Blocher, David E. Stout, Gary Cokins
Posted Date:
Students also viewed these accounting questions
-
Googles ease of use and superior search results have propelled the search engine to its num- ber one status, ousting the early dominance of competitors such as WebCrawler and Infos- eek. Even later...
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Consider n x n real matrices A satisfying A = A = A-. (a) When n = 2, determine all such matrices. (b) Assuming that -1 is not an eigenvalue of A, determine all such nxn matrices.
-
Daize Corp. is analyzing a proposal to switch its factory over to a lights-out operation similar to the one discussed in this chapters Decision Point. To do so, it must acquire a fully automated...
-
Sand wash is a casting defect which: (a) Results in a mismatching of the top and bottom parts of the casting (b) Is due to enlargement of the mold cavity by metal pressure (c) Occurs near the gates...
-
John is considering the purchase of a lot. He can buy the lot today and expects the price to rise to $\$ 15,000$ at the end of 10 years. He believes that he should earn an investment yield of $10 \%$...
-
Macro Media, LLC, has three members: WLKT Partners, Amanda Nelson, and Daily Sentinel Newspaper, LLC. On January 1, 2012, the three members had equity of $250,000, $50,000, and $140,000,...
-
A uniform beam of length 10 m and mass 100 kg is supported by pylons on either end. A 200 kg box is centered at 5 m from the left end of the beam. What is the downward force on the left most pylon?
-
Cinder Inc. is a Canadian-controlled private corporation based in your province. The company operates a wholesale business. The following information is provided for its year ended May 31, 2020: 1....
-
How Can Managers Plan Effectively in Dynamic Environments? Dynamic Environments = Planning Challenges As we saw in Chapter 2, the external environment is continually changing. How can managers...
-
How do respiratory disorders like chronic obstructive pulmonary disease (COPD) and asthma affect lung function, gas exchange, and overall systemic physiology, particularly in terms of their long-term...
-
Suppose you are designing a "function" for a safety critical part of an automobile. This function can be implemented by one or more microprocessors and software. You can choose among three forms of...
-
discuss the role of respiratory gas exchange in the context of environmental factors, including temperature, humidity, and altitude, and their impact on respiratory efficiency?
-
How does the process of cellular respiration integrate metabolic pathways to generate ATP in eukaryotic cells?
-
As you would sense through the articles, some PSLS turn out to be a great success while some others a failure. (For your reference, Philadelphia Eagles or San Francisco 49ers are examples for the...
-
John acquired 200,000 shares in M Corp. on 1 May 2012 for P400,000. On 10 July 2020, M. Corp was taken over by W, Inc. Clearance was obtained from Philippine Competition Commission that this was a...
-
A fuel pump sends gasoline from a car's fuel tank to the engine at a rate of 5.88 10-2 kg/s. The density of the gasoline is 735 kg/m3, and the radius of the fuel line is 3.18 10-3 m. What is the...
-
The PTO Division of Galva Manufacturing Company produces power take-off units for the farm equipment business. The PTO Division, headquartered in Peoria, has a newly renovated, automated plant in...
-
What is the Malcolm Baldrige National Quality Award and the ISO 9000 certificate? Why do many firms in the United States seek them?
-
The manager of MMX Digital must decide whether to initiate an advertising campaign for the firms newest multimedia computer chip. There has been some discussion among division managers about the...
-
Laura says she doesnt believe that humans were at one time chimpanzees or gorillas. Jeff says he doesnt believe it either. Explain why biologists also dont believe that humans are descended from...
-
Write a letter to Grandma telling her about drug resistance in living organisms. Explain to her why drug resistance is such a common phenomenonincluding why insects become more resistant to...
-
During a drought, the supply of seeds available to a finch population decreases. The smaller, softer seeds, which are easier to crack, are quickly eaten up. Finches with larger, stronger beaks are...
Study smarter with the SolutionInn App