Prsentation PowerPoint

TAMLTTYou ju$t gotLtt the hll up!Finance 230 PresentationEmilienMaryMartinZacharieVincent BarbeauFlorentBenhayounTristan BaronnetJeanne Ledogar

Monetary PolicyUnemployment Fiscal Policy GDP growthInflationInterest rate IR OMOs RESTRICTIONARYTaxes GS AUSTERITY5 %0.20%0.25 %2.2%

Hot NewsEconomy Strong Enough to Handle Rate Hike

Janet YellenWashington DC Nest FOMC next Tuesay ( 15 and 16 Dec)

GDP ANNUAL GROWTH !!!!!!!!!!!

MOVERS : Finance and insurance; professional, scientific, and technical services; and wholesale trade were the leading contributors to the increase in U.S. economic growth in the second quarter of 2015,2

Monetary PolicyUnemployment Fiscal Policy GDP growthInflationInterest rate IR OMOs EXPANSIONARYTaxes GE EXPANSIONARY9.3% 0.10%0.05%0.30%

Hot News

QE extended (not expanded) = RRR

GDP growth

Inflation rate

Interest Rate

ECB is in Frankfurt Mario Draghi RRR down from -0,2% to -0,3%,3

Monetary PolicyUnemployment Fiscal Policy GDP growthInflationInterest rate IR OMOs Taxes GE 4.05% 1.50%4.35%1.80%

EXPANSIONARYEXPANSIONARY

Hot News

Countered depreciation by buying yuan and selling dollars

GDP MOVERS: secondary sector: industry 40% and Construction 9%

Zhou Xiaochuan

to intervene to buy yuan and sell dollars, drying up liquidity in the banking system.

4

FX

Week 1

6

Long PositionStocks

Amazon at a glance

Listed on theServices - Online RetailHeadquarters in Seattle154,100 employees

Jeff Bezos

Online retailer of books, movies, music and games along with electronics, toys, apparel, sports, tools, groceries and general home and garden items.8

Vipshop At a GlanceHeadquarters in Guangzhou

Listed on theServices - Online Retail16,919 employeesMr. Ya Shen

Vipshop Holdings Limited have stopped trading on the Chinese stock markets and have turned to the New York Stock Exchange through the ADR system. They still operate in China via subsidiaries.9

AMZNVIPSIndustryMarket Cap:$ 246.39B$ 9.61B$ 258.83MEmployees:154,10016,9191,7Qtrly Rev Growth (yoy):20.00%75.00%34.00%Revenue (ttm):$ 95.81B$ 4.95B$ 677.84MGross Margin (ttm):31.00%25.00%33.00%EBITDA (ttm):$ 5.73B$ 287.36M$ 2.77MOperating Margin (ttm):1.00%4.00%0.00%Net Income (ttm):$ (188.00M)$ 202.42MN/AEPS (ttm):$ (0.41)$ 0.35$ (0.12)P/E (ttm):N/A47.4849.34PEG (5 yr expected):9.620.590.63

Competition Analysis

Quarterly revenue growth is huge in this industry. Vipshop is growing faster than Amazon Convergence

Gross Margin is huge in this industry. Amazon makes nice cut great inventory management.Vipshop can do better.

Low margins due to low pricing strategies and investment in the future.

Negative NI for Amazon investing in the future. Vipshop NI positive importance given to profitability.

Vipshop is a cheap and undervalued stock while Amazon is 15 times more expensive than the industry.

Negative Net Income due to constant reinvestment of earnings.

Vipshop is at a turning point of its business model. Having seen that luxury items were not exactly what Chinese consumers were looking for, Vipshops management took a U-turn and decided to propose a service selling products at a deep discount. The new strategy has gicen a kick to the company, which is now expanding rapidly hence the 75% quarterly revenue growth.Although Amazons quarterly revenue growth seems low next to the industry, you have to keep in mind that this company is at the top of the industry and is much bigger than its followers. Therefore, 20% is still high.

Even though Amazon has a gross margin of 6% and is seen as a discount player in the market, Jeff Bezos company reinvests almost everything in the future, which drives down Net Income and thus explains the negative number.10

Comparison of the 2 Stocks

Investing in Amazon consists in following the growth of the stock while buying VIPS shares consists of betting on a rebound of the stock.11

What drives Amazons growth

Amazons tremendous growth is driven by its investment-in-the-future strategy. Every penny earned is reinvested into expansionary projects. The growth is also sustained by Amazons organized targeting. Instead of getting too global too rapidly, Amazon keeps developing four high-growth key segments:

Retail & AmazonFresh Amazon Web Services

Third-party business (Amazon Marketplace) & Emerging Market (India)

Kindle & Prime

Amazon has also decided to fully control shipments in the near future notably with the use of drones. This should drive stock price through the roof when official as shipping costs will be tremendously reduced.

http://www.fool.com/investing/general/2014/01/15/amazon-4-key-long-term-growth-drivers.aspx12

RRR/ERR Calculations

RRR = 0.08% + (8.70% - 0.08%) x 0.73 = 6.37%

ERR1 = 255.60% + 0.00% = 255.60%

ERR2 = 401.90% + 0.00% = 401.90%

ERR3 = 205.70% + 0.00% = 205.70%

RRR = 0.08% + (8.70% - 0.08%) x 1.25 = 10.86%

ERR1 = 58.30% + 0.00% = 58.30%

ERR2 = 75.80% + 0.00% = 75.80%

ERR3 = 48.30% + 0.00% = 48.30%

ReturnRiskKrf = 0.08%Km = 8.70%ERR2=401.90%SMLBUY sideSELL sideHOLDRRR=10.86%ERR3=205.70%RRR= 4.74%ERR3=48.30%ERR2=75.80%CAPM SML GraphERR1= 255.60%ERR1=58.30%

=0.73=1.25=1.00

Hot News on AmazonAmazon declared its quarterly earnings at the end of October.Amazon should see very volatile trades after Black Friday results are published.Amazon beat estimates and what a beat !!My assumptions happened to be right as the market grew volatile but too late as results were only reported at the end of the following week.Q3 2015 EPSConsensusSurprise$ 0.17($ 0.10)270%

Potential RisksChinas economic downturn may hit hard on online retail service providers.

Amazon might have reached a peak and is about to plummet.

The currency war might undermine Amazons revenues.

The Fed raises interest rates and provokes major turmoil in the markets impacting Amazon.

Amazon board decides to declare dividends and enters a new era.

Position Details

Amazon Inc. Long PositionOur caseBest CaseWorst CaseLong$ 537.60$ 537.60$ 537.60Sell$ 671.91$ 682.77$ 490.50# of shares186186186Initial Investment$ 99,993.60$ 99,993.60$ 99,993.60Sold Amount$ 124,975.26$ 126,995.22$ 91,233.00- Comission($ 20,00)($ 20,00)($ 20,00)+ Dividend - - - Long on09/23/1509/23/1509/23/15Sold on11/30/1511/23/1509/29/15# of days68616Total Gain/Loss$ 24,981.66$ 27,001.62($ 8,760.60)Return %24.98%27.00%(8.76%)Annualized return %132.26%159.36%(525.67%)Actual 52-week Return %103.73%103.73%103.73%

What drove my investment? :

The unstoppable growth of the company and its stock.

Earnings that beat estimates.

Amazon Web Services appears to be the best deal in the industry. Investors have seen that. Stock up.

Worst Case$490.50/share(8.76%) return09/29/15Best Case$682.77/share27.00% return11/23/15Bought$537.60/share0.00% return09/23/15Sold$671.91/share24.98% return11/30/15

Investing in Vipshop could have given us a better return but also the lowest return possible.No regrets here.

Short Position

Company overviewHeadquarter: Irving, Texas

Sector: Basic Materials

Industry: Major integrated oil and gas

Employees: 75,300

Biggest oil company publicly traded

RRR & ERR

RRR = 0.10% + (8.70%-0.10%) x 0.93 = 8.10%ERR1= 4.02% - 46.20% = -42.18%ERR2= 4.02%+8.10% = 12.12%

RRR = 0.10% + (8.70%-0.10%) x 1.17 = 10.16%ERR1= 5.51% 67.30% = -61.79%ERR2 = 5.51% + 20,80% = 26,31%http://finance.yahoo.com/q?s=cvx&ql=1http://finance.yahoo.com/q?s=xom&ql=1

Km = 0.10%1Krf = 8.70%ERR2 = 26.31%ERR1 = -61.79%ERR2 = 12.12%1.17RRR = 10.16%RRR = 8.10%0.93ERR1 = -42.18%

ExxonMobilChevron

CAPM SML GraphHoldSELLBUY

Financial analysis

Forward P/E > Trailing P/E. This means EPS will fall in the future.Current EPS = Price/Trailing P/E = $72.71/12.93 = $5.62Expected EPS = Price/Forward P/E = $72.71/16.97 = $4.28SHORTVariation of EPS: (Expected EPS Actual EPS) / Actual EPS($4.29-$5.62)/$5.62 = -23.67%http://finance.yahoo.com/q?s=cvx&ql=1

P/E Analysis

Bloomberg thinks XOM EPS will fall by 48.64% They expect price to fall or P/E to increasePrevious slides: P/E Increase, but analysts expect price to fall.The increase in P/E is not sufficient to explain a 48.64% decrease in EPS.http://www.bloomberg.com/visual-data/industries/rank/name:market-cap

Best/Worst caseSTOCKSExxon Mobil Short PositionOur caseBest CaseWorst CaseShorted$72,91$72,91$72,91Covered-$86,26-$71,72-$87,44# of shares-1375-1375-1375Initial Investment$100251,25$100251,25$100251,25Covered Amount-$118607,50-$98615,00-$120230,00- Comission-$10,00-$10,00-$10,00+ Dividend - - - Shorted on09/23/1509/23/1509/23/15Covered on11/03/1509/24/1511/03/15# of days 41 2 41 Total Gain/Loss-$18356,25$1636,25-$19978,75Return %-18,31%1,63%-19,93%Annualized return %-160,77%293,79%-174,98%

Shorted$72.91Best$71.72Worst$87.44Covered$86.26

What drove the priceExxonMobil beat Q3 estimates on October 30th

Price of oil keeps decreasing since Jan 15ExxonMobil released the price of their dividends for Q4

Exxon positively correlated with the S&P5000.65

Hot NewsExxonMobil Starts Oil Production at Erha North Phase 2 Project Ahead of Schedule and Well Under Budgethttp://news.exxonmobil.com/press-release/exxonmobil-starts-oil-production-erha-north-phase-2-project-ahead-schedule-and-well-un

ExxonMobil signs Agreements to increase position in Permian Basinhttp://news.exxonmobil.com/press-release/exxonmobil-signs-agreements-increase-position-permian-basin

ExxonMobil to Expand U.S Domestic Crude Processing Capacity At Beaumont Refineryhttp://news.exxonmobil.com/press-release/exxonmobil-expand-us-domestic-crude-processing-capacity-beaumont-refinery

ExxonMobil Earns $4.2 Billion in second quarter 2015http://news.exxonmobil.com/press-release/exxonmobil-earns-42-billion-second-quarter-2015

http://news.exxonmobil.com/

29

Calculation

Price of the Stock: $72.71StockTrak commission $10Initial Investment: $100,000Real Investment: $100,000/($72.71/Per share) = 1,375 shares1,375 shares x ($72.71/Per Share) + $10 = $99,986.25

Order passed when stock was at $72.71, StockTrak bought at $72.91 per share

Why invest in ETFs?DiversityLiquidityFlexibilityInnovationLev./Inv.http://www.investopedia.com/video/play/4-reasons-to-invest-in-etfs/Includes every assets such as currency, stocks, indexes, etc. Traded all during the dayDifferent style of management: active or passiveNew creation of ETFsLeveraged or inverse ETF

Includes every assets such as currency, stocks, indexes, etc. Traded all during the dayNew creation of ETFsLeveraged or inverse ETF32

http://www.bloomberg.com/news/articles/2015-09-17/best-etf-bet-this-year-is-shorting-brazilian-shares-two-timesCountrys asset are selling off 32 percent decrease of the brazilian realS&P cut Brazil to BB+ ratingDeeper-than-expected economic recessionFailure to shore up fiscal accounts32 percent decrease of the real

32 percent decrease of the real=> Worst performing emerging-market currencySept. 9th, 2015: S&P cut Brazil to BB+ ratingDeeper-than-expected economic recessionFailure to shore up fiscal accountsCountrys asset are selling off =>Corruption scandal at the stated-controlled oil

33

ProfileProShares UltraShort MSCI Brazil Capped (BZQ)

The Fund seeks daily investment results that correspond to twice the inverse of the daily performance of the MSCI Brazilian 25/50 Index.2X LEVERAGED INVERSE

Twice the inverse

Small ETFhttp://www.morningstar.com/etfs/ARCX/BZQ/quote.html

Holdings

No diversificationHigh riskHigh Gain/Loss

1/31/5Medium-sized companies

Averaged volatility

High dividend yield

Martin Zacharie (MZ) - Non-Diversification Risk The Fund is classified as nondiversifiedunder the Investment Company Act of 1940, andhas the ability to invest a relatively high percentage of itsassets in financial instruments with a single counterparty or afew counterparties. This may cause the credit of one or a relativelysmaller number of counterparties to have a greaterimpact on the Funds performance.

Calculation

Number of sharesReal Investment

Our caseBest CaseWorst CaseBought$174,16$174,16$174,16Sold$125,58$200,63$112,26# of shares574574574Initial Investment-$99 967,84-$99 967,84-$99 967,84Sold Amount$72 082,92$115 161,62$64 437,24+ Dividend - - - Bought on09/23/1509/23/1509/23/15Sold on11/27/1509/24/1511/20/15# of days65258Total Gain/Loss-$27 884,92$15 193,78-$35 530,60Return %-27,89%15,20%-35,54%Annualized return %-154,49%2735,76%-220,61%

Best/Worst Case

BoughtBest CaseWorst CaseSold

What happened?BRL appreciated during the following weeksCorruption scandal

Did not meet their earnings

https://finance.yahoo.com/news/proshares-announces-etf-share-splits-203000108.htmlhttp://www.reuters.com/article/us-petrobras-brent-idUSKCN0I503620141016#E4ii6ElRhTyOxjHQ.9738

Definition An investment vehicle that is made up of a pool of funds collected from many investors in order to invest in securities such as stocks, bonds, money market instruments and similar assets.

Company overview

66.5 % 3.3% 10.7 % 18.8 % Industry: TechnologyFund Family: T. Rowe Price Founded in: 2000Manager : Joshua K. SpencerHQ: Baltimore, MarylandTraded: NASDAQ http://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=28116059

Major holders

https://en.wikipedia.org/wiki/Treynor_ratio

http://www.investopedia.com/terms/t/treynorratio.asp

http://finance.yahoo.com/news/time-buy-t-rowe-price-110311867.html

Ratio (5yrs)PRGTXBGSAXIndustry Total Assets $2.1B$253.2 M-Sharpe Ratio1.290.890.92Treynor Ratio20.5414.3114.42Beta1.120.991.01Expense ratio 0.91%1.61%-

Competitors

X 1.44X 1.42

X 1.44X 1.40Sharpe ratio

Is the average return earned in excess of the risk-free rate per unit of volatility or total risk. The closest from 3, the better.

(Mean portfolio return- risk free rate)/SD of the portfolio return Treynor ratioMeasure returns earned in excess of which could have been earned on a riskless investment per each unit of market risk

(Average Return of the Portfolio - average return of the Risk-Free rate)/Beta

Expense ratio

Fee paid to a fund's investment manager/advisor, recordkeeping, custodial services, taxes, legal expenses, accounting and auditing fee.

https://en.wikipedia.org/wiki/Treynor_ratio

http://www.investopedia.com/terms/t/treynorratio.asp

http://finance.yahoo.com/news/time-buy-t-rowe-price-110311867.html

42

WHY ?The average tech fund has gained 9.86 % a year over the 10 past years vs. 7.99% for the S&P500 indexTechnology stocks are considered more volatile

2014Return:20.77%2014Return: 18.03 % Beta:1.12Risk:HIGHFees:0.91%LOWBeta: 0.99Risk :AVERAGEFees: 1.61% HIGH

http://data.cnbc.com/quotes/BGSAX/tab/4http://money.usnews.com/funds/mutual-funds/technology/blackrock-science-%26-technology-opportunities-portfolio/bgsax/performance

http://data.cnbc.com/quotes/BGSAX/tab/4http://money.usnews.com/funds/mutual-funds/technology/blackrock-science-%26-technology-opportunities-portfolio/bgsax/performance43

What Happened ??http://www.cnbc.comhttp://seekingalpha.com

Slump in biotech stocks

Weak data out of China

VRX impact

Tech sector more likely to report above par earnings Hillary Clinton declarationPrice of drugs is too high Gravitational pull of the Fed Tech sector impressed with Q3 earnings Positive economic report ahead of Thanksgiving

10 th July: Chinese tech stocks are now a buy, say pros : http://www.cnbc.com/2015/07/10/chinese-tech-stocks-are-now-a-buy-say-pros.html?source=yahoo%7Cfinance%7Cheadline%7Cheadline%7Cstory&par=yahoo&doc=102822624 : However, some investors specializing in technology companies aren't selling: In fact, they're using this weakness to buy Chinese tech firms.

May 22 :http://seekingalpha.com/article/3205186-does-holding-apple-really-matter-for-funds-success

Though the impact of Apple cannot be denied, it is also true that effective fund management and right stock pickings can help funds too. Technology has emerged over the years to cherish potential performers like semiconductors and cloud computing among others. A well diversified fund with investments in advance science and technology, Internet, data, cloud computing and also semiconductor among others should see increased gains when the fund is managed effectively.On the other hand, the next best gains from funds holding Apple were 22.2% and 21.3%.

August 21: America's stock market plunged dramatically, making its biggest lost of the year. http://money.cnn.com/2015/08/21/investing/stocks-market-lookahead-august-21/

44

Best/Worst

14.32 %

Corporate Bond

Headquarter: Dallas, Texas

Sector: Industrials

Industry: Airlines

Employees: 47, 645

Company overview

47

http://quicktake.morningstar.com/StockNet/bonds.aspx?Symbol=LUV&Country=USAhttp://www.standardandpoors.com/spf/general/RatingsDirect_Commentary_979212_06_22_2012_12_42_54.pdf Morningstar rating:

Good debt capacity

Credit Rating

http://quicktake.morningstar.com/StockNet/bonds.aspx?Symbol=LUV&Country=USA

Lower than industryDebts & Coverage Ratios better than the IndustryCredit Rating

Annual Coupon payment Price$100, 000 Investment/ $1038.60 = 94 bonds Annual interest + Par value Price Years to maturityPar value + Price 2YieldYield to maturityNumber of bonds bought

http://quicktake.morningstar.com/StockNet/bonds.aspx?Symbol=LUV&Country=USA

CalculationsBondCompany NameCoupon rateMaturity dateMaturity in yearsPar valueAnnual Coupons paymentPriceYieldYield to MaturityNumber of bonds boughtSouthWest Airlines9,150%1-Jul-201611000 $ 91,50 $ 1 038,60 8,810%5,190%94

Premium or Discount?Price > Par Value = Premium

$1, 038.60 > $1, 000 = Premium

PremiumSouthWest Airlines bond: $1, 038.60Par value: $1, 000http://quicktake.morningstar.com/StockNet/bonds.aspx?Symbol=LUV&Country=USA

Company NameCoupon rateMaturity dateMaturity in yearsPar valueAnnual Coupons paymentPriceYieldYield to MaturityNumber of bonds boughtSouthWest Airlines9,150%1-Jul-201611000 $ 91,50 $ 1 038,60 8,810%5,190%94

Default Premium

SouthWest Airline bond YTM = 5.190%

US T-Note YTM = 0.318%5.190% 0.318% = 4.87%487 Basis pointsU.S Treasury bondVSCorporate bond

http://screener.finance.yahoo.com/z2?ce=4915552143561496916156&q=b%3d2%26cpl%3d-1.000000%26cpu%3d-1.000000%26mtl%3d6%26mtu%3d12%26pr%3d0%26rl%3d-1%26ru%3d-1%26sf%3dm%26so%3da%26stt%3d-%26tt%3d1%26yl%3d-1.000000%26ytl%3d-1.000000%26ytu%3d-1.000000%26yu%3d-1.000000

Accrued interest

Interest that has been earned but not yet paid since last payment dayhttp://quicktake.morningstar.com/StockNet/bonds.aspx?Symbol=LUV&Country=USA

Coupon Rate X Face Value Days Payment frequency Days in payment periodX

Best case Worst caseOur caseBest CaseWorst CaseBond Price$1 038,60$1 038,60$1 038,60Sold$1 038,60$1 038,60$1 038,60# of bond949494Initial Investment-$99 560,68-$99 560,68-$99 560,68Sold Amount$100 927,41$101 470,25$99 560,68+ Accrued Interest$1 366,73$1 909,57 - Bought on23/09/201509/23/1509/23/15Sold on11/20/1501/07/1609/23/15# of days581041Total Gain/Loss$1 366,73$1 909,57$0,00Return %1,37%1,92%0,00%Annualized return %8,52%6,64%0,00%

US Treasury Bond

Standard & Poors Bond Rating

Source: Eikon as of 9/30/15. Reflects most recent data available. Credit ratings by Standard & Poor's.Emerging markets: High yield because of uncertain economic conditions.China: uncertain growthBrazil & Russia: Recession

https://www.putnam.com/individual/infographics/global-bond/56

QE

QE2

QE3

QE1

U.S. Dollar Index ($DXY)

U.S. Dollar strengthens

Treasuries Yields

Flat Yield Curve

Normal Yield Curve-472 Bps-169 Bps12345

http://www.federalreserve.gov/monetarypolicy/openmarket.htmhttp://www.bankrate.com/rates/interest-rates/federal-funds-rate.aspxhttp://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/Historic-Yield-Data-Visualization.aspx59

T-Bond 3.75% 15-Nov-2043

$ 989.33Sell at a discount price$ 1,172.34P IR

PVFV$ 1,000.00

Calculations

24-Sept-2015PV: $1,172.34Current Yield: 3.20%15-Nov-2043FV: 1,000.00$YTM: 2.85%

Payment: May & Nov.$18.75

Best $1190,08Worst $1132,81Sold $1154,38Bought $1172,34Our Case, Best Case & Worst Case

Best $1190,08Worst $1132,81Sold $1154,38Bought $1172,34Our Case, Best Case & Worst Case

Our Case, Best Case & Worst Case

When Will The Fed Raise Its Interest Rate?

A growing majority of economists surveyed by Bloomberg are calling for a December Federal Reserve rate hike after officials bypassed it at their September meeting.Source: blomberg.com

http://www.bloomberg.com/graphics/2015-fed-rate-hike-predictions/65

In The Next Episode

http://www.bloomberg.com/news/articles/2015-11-04/yellen-and-dudley-signal-december-is-still-live-for-rate-hike66

Week 2

67

CALL OPTION BUYER______HAS THE RIGHT TO BUY A STOCK, CURRENCY OR INDEX AT THE EXERCISE PRICE

PAYS THE SELLER AN OPTION PREMIUM

BELIEVES THE UNDERLYING ASSET WILL BE HIGHER IN VALUE THAN THE BREAKEVEN PRICE SELLER______HAS THE OBLIGATION TO SELL A STOCK, CURRENCY OR INDEX AT THE EXERCISE PRICERECEIVES FROM THE BUYER AN OPTION PREMIUM

BELIEVES THE UNDERLYING ASSET WILL BE LOWER IN VALUE THAN THE BREAKEVEN PRICE

BREAKEVEN PRICE=EXERCISE PRICE + OPTION PREMIUM

PUT OPTION BUYER______HAS THE RIGHT TO SELL A STOCK, CURRENCY OR INDEX AT THE EXERCISE PRICE

PAYS THE SELLER AN OPTION PREMIUM

BELIEVES THE UNDERLYING ASSET WILL BE LOWER IN VALUE THAN THE BREAKEVEN PRICE SELLER______HAS THE OBLIGATION TO BUY A STOCK, CURRENCY OR INDEX AT THE EXERCISE PRICERECEIVES FROM THE BUYER AN OPTION PREMIUM

BELIEVES THE UNDERLYING ASSET WILL BE HIGHER IN VALUE THAN THE BREAKEVEN PRICE

BREAKEVEN PRICE=EXERCISE PRICE-OPTION PREMIUM

CALL

PUT

Right to buy a man

you paid an option premium to adopt un mec

Believe the value of the man will increase Adopt him today, you sell him back when his price will be higher

Right to sell a manBefore going on the date, you paid an option premiumBelieve the value of the man will decrease Adopt him today, you sell him back at the exercice price even if his value is lower than when you adopted him

70

Bull Call Spread

Call Buy:YUM00080C100900015Root (ticker for Yum! Brands Inc.)Year of expiration (2015)Month and Day of expiration (October 09th)Call (C) or Put (P)Strike Price ($80)Strike Price fraction of Dollars (N/A)Call Sell:YUM00092C011550016Root (ticker for Yum! Brands Inc.)Year of expiration (2016)Month and Day of expiration (January 15th)Call (C) or Put (P)Strike Price ($92)Strike Price fraction of Dollars ($0.5)Symbologism

FundamentalAnalysis

The Company

Worlds largest pizza company13.600 restaurants85 countries1 chicken restaurant chain14.200 restaurants115 countries1 Mexican-style U.S. fast food6.000 restaurants20 countriesWe are opening on average over five new restaurants per day outside the U.S. in 2014.

Yum! Restaurants China

Yum! Restaurants IndiaHeadquartersLouisville. Kentucky of restaurants41,000 Presence125 countriesFortune 500 rank228 of associates1.5 million

Revenue$ 13.28B (2014)Net Income$ 1.05B (2014)

David C. NovakDirector

Greg CreedCEO6.800 restaurants+1.000 citiesOpening 700 extra in 2015600 million customers target571 restaurants2020: 2.000 restaurantsIndia to become the biggest consumer class in the world

Our KFC division includes over 14.200 restaurants including over 4.400 units in the U.S. and more than 9.500 outside the U.S. in 115 countries. excluding the Yum! China and India divisions. Yum Brands websiteOur Pizza Hut division includes nearly 13.600 restaurants including over 7.800 units in the U.S. and over 5.500 outside the U.S. in 85 countries. excluding the Yum! China and India divisions. Yum Brands websiteTaco Bell. a subsidiary of Yum! Brands. is the nations leading Mexican-style quick service restaurant serving more than 36 million customers each week in nearly 6.000 stores in the U.S. Yum Brands websiteWe think China is the best restaurant opportunity of the 21st Century with a consuming class that is expected to double from 300 million to more than 600 million people by 2020. Yum Brands website74

Quick Competition AnalysisYUMMCDSBUXCMGIndustryMarket Cap:$ 34.44B$ 93.03B$ 85.31B$ 22.56B$ 935.52MEmployees:69,810420,000191,00053,0906,100Qtrly Rev Growth (yoy):(3.00 %)(10.00 %)18.00 %14.00 %9.00 %Revenue (ttm):$ 13.08B$ 26.02B$ 18.43B$ 4.44B$ 435.76MGross Margin (ttm):26.00 %38.00 %31.00 %38.00 %31.00 %EBITDA (ttm):$ 2.70B$ 9.03B$ 4.13B$ 950.72M$ 63.68MOperating Margin (ttm):15.00 %29.00 %18.00 %19.00 %8.00 %Net Income (ttm):$ 915.00M$ 4.18B$ 2.69B$ 514.88MN/AEPS (ttm):$ 2.04$ 4.30$ 1.78$ 16.33$ 0.65P/E (ttm):39.1322.9832.3844.3725.29PEG (5 yr expected):1.963.151.991.861.57

Yum! And McDonalds are facing difficulties especially with China. Starbucks and Chipotle continue climbing.

McDonalds and Chipotle seem to have efficient COGS management, which is not the case for Yum! (5% less GM than industry).

McDonalds has an OM twice as big as Yums OM better pricing strategy / operating efficiency at MCD. Yum! Still 2x better than industry.

As competitors make at least 10% ROS, Yum! stands at 7%, which points out its lack of profitability.

PEG confirms Yum! Stock more desirable even if stock seems not to be undervalued. MCD is 2x more expensive than the industry.

YUM Brands Inc. has a net income four times smaller than McDonalds even though McDonalds is only 2.7x bigger in terms of market cap. It indicates a better financial management at MacDonalds.

The Gross Margin is weaker than the industry. Yum Brands might be less able to retain earnings and reinvest them in their branches than competitors. Even the industry is higher.

Yum Brands Inc. is definitely a big actor in this industry with its 70,000 employees.75

Hot NewsI am taking this option on a very short term basis because I believe the underlying asset will rise in value just after the company releases its earnings. I will then take advantage of the high volatility to close my call at a potential peak.

My Call Buy strike price was out of the money at the opening of the Call making this trade a risky investment so that it would be in line with our strategy.

I sold a call at a very high strike price of $92.50 in case the rise is too violent or if it turns out that Yum! Brands missed earnings estimates. That way I could make double money or recuperate the option premium if my gut feelings were wrong.

Earnings released on October 6th, 2015

EPS Consensus ForecastEPS Previous Year$ 1.07$ 0.87Q3 2015 EPSSurprise$ 1.00(6.54%)

Nasdaq.comPast two quarters have had positive high surprise rates (10%). If it happened again it would stimulate volatility.

Technical Analysis

Moving Average

Double Death Cross followed by a 3-months bear market.

Quick Golden Cross followed by Death Cross.

Return of a bull market? I bet on it.

Uncertainty finally followed by a bull market.

Stabilization as the stock sets a floor. Followed by a great bull market period of 3-months.

Bollinger BandsVolatility falls. stocks overbought

Volatility rises. stocks underbought

Volatility falls. stocks overbought

Volatility rises. stocks underbought

Volatility rises. stocks underbought

When stock prices continually touch the upper Bollinger Band. the prices are thought to be overbought; conversely. when they continually touch the lower band. prices are thought to be oversold. triggering a buy signal. Investopedia79

RSI

Perfect time to Buy or Short.

Too late. Everyone made the trades. Stock is overbought.Too late. Everyone made the trades. Stock is oversold.

1st step: Buying a Yum! Brands callI had the right to buy Yum! Brands at the exercise price of $80.00.Since I bought the call, I had to pay the seller an option premium of $2.4601 per share.I assumed that Yum! Brands stock price would rise above the breakeven price of $82.4601 before the calls expiration on October 10th, 2015.

Greeks Call BuyDelta =0.49181% x$79.58=$0.7958New Stock Price:$80.3758A 1% increase in the stock pricewill drive the option price to rise by $0.4918 $2.4601 New Option Price+ $0.4918 = $2.9519

Theta =-0.1662What will happen to the Option Price in 24 hours?If all held constant. in a day's timethe Option Price will fall by 16.62%New Option Price:(1+x$2.4601-0.1662)= $2.0512

Volatility:56.53%Vega =0.04700.5653+ 1%=57.53%0.5653- 1%=55.53%If the stock's volatility increases by 1%the Option Price will rise by4.70%(1+x$2.4601New Option Price0.0470)= $2.5757

Interest Rate:0.1930%Rho =0.00800.00193+ 1%=1.19%0.00193- 1%=-0.81% If interest rates increase by 1%the option price would increase by0.80%(1+x$2.4601New Option Price0.0080)= $2.4798

Call Buy CalculationsActual Price$79.58Exercise Price$80.00Option Price$2.4601Breakeven Price$82.4601*Contract:$2.4601x100=$246.01Option Price / ShareShares / ContractOption Price Per Contract*Contracts: $10,100.00 /$246.01=41Initial InvestmentOption Price per ContractNumber of ContractsInvestment:41x$246.01=$10,086.41Number of ContractsOption Price per ContractTotal InvestmentLeverage: of Shares - OM41x100=4,100Number of ContractsShares / ContractTotal of Shares - OM of Shares - SM$10,086.41/$79.58=126Total Investment Actual PriceTotal of Shares - SMLeverage =4,100/126=33xTotal of Shares - OMTotal of Shares - SMLeverage Ratio

BEEP Gain (in theory)Max Loss = ($10,086.41)

2nd step: Selling a Yum! Brands callI had the obligation to sell Yum! Brands at the exercise price of $92.50.Since I sold the call, I received from the buyer an option premium of $1.3303 per share.I assumed that Yum! Brands stock price would stay below the breakeven price of $93.8303 before the calls expiration on January 15th, 2016.

Greeks Call SellDelta =0.19841% x$79.87=$0.7987New Stock Price:$80.6687A 1% increase in the stock pricewill drive the option price to rise by $0.1984 $1.3303 New Option Price+ $0.1984 = $1.5287

Theta =-0.0174What will happen to the Option Price in 24 hours?If all held constant. in a day's timethe Option Price will fall by1.74%New Option Price:(1+x$1.3303-0.0174)= $1.3071

Volatility:30.36%Vega =0.11980.3036+ 1%=31.36%0.3036- 1%=29.36%If the stock's volatility increases by 1%the Option Price will rise by11.98%(1+x$1.3303New Option Price0.1198)= $1.4897

Interest Rate:0.3205%Rho =0.04250.003205+ 1%=1.32%0.003205- 1%=-0.68%If interest rates increase by 1%the option price would increase by4.25%(1+x$1.3303New Option Price0.0425)= $1.3868

Actual Price$79.87Exercise Price$92.50Option Price$1.3303Breakeven Price$93.8303*Contract:$1.3303x100=$133.03Option Price / ShareShares / ContractOption Price Per Contract*Contracts: $5,454.23/$133.03=41Initial InvestmentOption Price per ContractNumber of ContractsInvestment:41x$133.03=$5,454.23Number of ContractsOption Price per ContractTotal InvestmentLeverage: of Shares - OM41x100=4,100Number of ContractsShares / ContractTotal of Shares - OM of Shares - SM$5,454.23/$79.87=68Total Investment Actual PriceTotal of Shares - SMLeverage =4,100/68=60xTotal of Shares - OMTotal of Shares - SMLeverage Ratio

Call SellCalculations

G

A

I

NL

0

S

SOUT OF THE MONEY

Max Gain = $5,454.23

G

A

I

NL0SS

The loss of $4,632.18 is due to the spread between the bigger option premium of the bought call and the smaller option premium of the sold call.89

Positions Details

Yum Brands: Bull Call Spread Call BoughtCall SoldOption SymbolYUM151009C00080000YUM160115C00092500Stock Price $ 79.58 $ 79.87 Exercise Price $ 80.00 $ 92.50 Option price per share $ 2.4601 $ 1.3303 Number of shares per contract100100Option price per contract $ 246.01 $ 133.03 Breakeven Price $ 82.4601 $ 93.8303 Number of contracts 4141Investment $ 10,086.41 $ 5,454.23 Leverage3360Bought on / Sold on10/1/1510/2/15Not Exercized but sold on10/7/1510/7/15At the price of $ 0.01 $ 0.23 Change in price ($ 2.45) ($ 1.10) Gain/Loss ($ 10,086.41) $ 5,454.23 Commission ($ 20.00) ($ 20,00) Total Gain/Loss ($ 10,086.41) $ 5,454.23 Return(100.00%)100.00%Gain / Loss ($ 10,086.41) $ 5,454.23 Days76Annualized Return(5,142.86%)6,000.00%TOTAL GAIN/LOSS ($ 4,632.18)

What drove my investment? :

Figures on Yum! expansion abroad

Earnings that missed estimates.

China situation getting worse.

Call BoughtEP=$80.00OP=$2.460110/01/15Actual PriceBuy Call$79.5810/01/15Call SoldEP=$92.50OP=$1.330310/02/15Actual PriceSell Call$79.8710/02/15

BULL PUT SPREADValeant Pharmaceuticals International (VRX)

Company overview1960J. Michael Pearson17,000employeesLaval$8.3Bhttp://www.valeant.com/

New-York Stock ExchangeVRX

Creation in 1960J.Michael Pearson is the actual CEOThey have 17,000 employees worldwide in 2015Their headquarters are in Laval, CanadaMore than $8,3B in sales for 201493

Valeant confirms to buy Sprout Pharmaceuticals for about $1 billionValeant Pharmaceuticals' stock gains 0.6% after merger deal with SynergeticsValeant boosts guidance after strong quarter

http://www.marketwatch.com/story/valeant-confirms-to-buy-womens-viagra-maker-sprout-pharmaceuticals-for-about-1-billion-2015-08-20http://www.marketwatch.com/story/valeant-boosts-guidance-after-strong-quarter-2015-07-23-64855151

Valeant confirms to buy women's 'viagra' maker Sprout Pharmaceuticals for about $1 billionValeant Pharmaceuticals' stock gains 0.6% after merger deal with SynergeticsValeant boosts guidance after strong quarter

94

Current monthGradeStrong buy155Buy21224Hold326Underperform414Sell500Total201.95

Three months agoGradeStrong buy155Buy21224Hold326Underperform414Sell500Total201.95

http://finance.yahoo.com/q/ao?s=VRX+Analyst+OpinionAnalysts Opinion

- Analysts Opinion is the same from three months ago to the current month and is still a buy95

OversoldShort term: Demand Price Long term: Price roseOverbought Short term : Demand Price Long term : Price fell

https://www.barchart.com/chart.php?sym=VRX&style=technical&templateRelative Strength Index

Small overbought or oversold therefore small changes comingPrices should tend to increase96

https://www.barchart.com/chart.php?sym=VRX&style=technical&templateMoving Average

Middle moving averageFast moving averageSlow moving averageBuy signalFMA > MMA > SMASell signalFMA < MMA < SMA

Decrease signal: Price is higher than moving averageIncrease signal: Price is lower than moving averageTrend to decrease97

https://www.barchart.com/chart.php?sym=VRX&style=technical&template

Volatility decreasesVolatility increasesStock Price should tend to increaseBollinger Bands

SymbologyVRX1520W175VRX1520W190COMPANY QUOTEExpiration Date:November, 20th 2015EXERCISE PRICE

Greek VariableActual Price: $178.38Option Price: $18.30Strike: $175Intrinsic Value: Out of the money => No intrinsic valueTime Value: $18.30

DELTA: -0.4204 1% X $178.38 =$1.7838New stock price =$180.161% increase in the stock price, will drive the option price to fall by $0.4204Therefore,New option price: $18.30 - $0.4204 = $17.88VEGA: 0.258964.52% + 1% = 65.52%64.52 % - 1% = 63.52 %If the stocks volatility rise by 1%, the option price will rise by 25.89%Therefore:New option price:$18.30 x(1+0.2589)= $23.04THETA: -0.1667In 24 hours, what about Valeant option price?If all held constant, in one day the option price will fall by 16.67%Therefore,New option price: $18.30 x (1-0.1667)= $15.25RHO: -0.1115In 24 hours, what about Valeant option price?If all held constant, in one day the option price will fall by 11.15%Therefore,New option price: $18.30 x (1-0.1115)= $16.26Buy Put

Greek VariableActual Price: $178.38Option Price: $24.40Strike: $190Intrinsic Value: 190-178.38= $11.61Time Value: 24.40-11.61= $12.79

DELTA: -0.5616 1% X $178.38 =$1.7838New stock price =$180.161% increase in the stock price, will drive the option price to fall by $0.5616Therefore,New option price: $24.40 - $0.5616 = $23.83VEGA: 0.262062.69% + 1% = 63.69%62.69% - 1% = 61.69%If the stocks volatility rise by 1%, the option price will rise by 26.20%Therefore:New option price:$24.40 x (1+0.2620) = $30.79THETA: -0.1631In 24 hours, what about Valeant option price?If all held constant, in one day the option price will fall by 16.31%Therefore,New option price: $24.40 x (1-0.1631)= $20.42RHO: -0.1476In 24 hours, what about Valeant option price?If all held constant, in one day the option price will fall by 14.76%Therefore,New option price: $24.40 x (1-0.1476)= $20.79Sell Put

CalculationPrice per contract100 sharesx $18,30 =$1830,00 ContractShareContract

Number of Contracts $9150 $1830 =4Money to investContractcontracts

Initial Investment4x $1830,00 = $7320,00 contractsContractInitial Investment

Price per contract100 sharesx $24,40 = $2440,00 ContractShareContract

Number of Contracts $9760 $2440 =4Money to investContractcontracts

Initial Investment4x $2440,00 = $9760,00 contractsContractInitial Investment

Buy PutSell Put

LeverageStock Market $7320,00 178,38=41Initial InvestmentShareshares

Option Market4x100 shares=400ContractsContractshares

Leverage40041=9,75sharesshares

Buy PutStock Market $9760,00 178,38=55Initial InvestmentShareshares

Option Market4x100 shares=400ContractsContractshares

Leverage40055=7,27sharesshares

Sell Put

Option Profit/LossMax Loss = -$7,320Max Gain = $62,680GAINLOSSIN THE MONEYEXERCISE POSSIBLEOUT OF THE MONEYNO EXERCISEAT THE MONEY$156.7$175

104

Option Profit/LossOUT OF THE MONEYNO EXERCISEIN THE MONEYEXERCISE POSSIBLEAT THE MONEYGAINLOSS$190$165.6Max Loss = -$66,240Max Gain = $9,760

105

Option Profit/Loss

Max Loss = -$3,560Max Gain = $2,440GAI NLOS S$190$175

Buy Put Option Sell Put Option Symbol VRX1520W175 Symbol VRX1520W190 Valeant (VRX)Our CaseValeant (VRX)Our CaseStock Price $ 178,38 Stock Price $ 178,38 Exercise Price $ 175,00 Exercise Price $ 190,00 Option price per share $ 18,30 Option price per share $ 24,40 Number of shares per contract100Number of shares per contract100Option price per contract $ 1 830,00 Option price per contract $ 2 440,00 Breakeven Price $ 156,70 Breakeven Price $ 165,60 Number of contracts 4Number of contracts 4 Investment $ 7 320,00 Investment $ 9 760,00 Leverage9,75Leverage7,31Bought on10/1/15Sold on 10/1/15Sold on10/20/16Did not sell, so expire date10/20/15At the price of $ 25,53 At the price of $ 99,00 Change in price $ 7,23 Change in price $ 74,60 Gain/Loss $ 10 212,00 Gain/Loss $ -39 600,00 Total Gain/Loss $ 10 212,00 Total Gain/Loss $ -39 600,00 Return139,51%Return-405,74%Loss $ 10 212,00 Loss $ -39 600,00 Days379,00Days19,00Annualized Return132,51%Annualized Return-7687,66%TOTAL GAIN/LOSS $ -29 388,00

What happened?

-40%VRX has been scrutinized by lawmakers for pushing up the prices of heart drugs Isuprel and Nitropress Accused of acquiring drug makers and then jacking up the prices of their products, which have been on the market for yearsAccused of an Enron-like strategy of recording fake sales by using phony customers.

http://www.bloomberg.com/news/articles/2015-10-21/valeant-shares-plummet-as-citron-examines-specialty-pharmacy108

Bear put spread

Buy put

I have the right to buy at the exercise price of $30I am required to pay an option premium to the seller of $0.72I think the underlying asset will be lower in value than the breakeven price of $29.28

Sell put

I have the obligation to sell at the exercise price of $28.50I am required to receive an option premium from the buyer of $0.30I think the underlying asset will be higher in value than the breakeven of $28.80

IndustrySemi-conductor deviceshttp://www.bloomberg.com/visual-data/industries/detail/metals+mining

Biggest market capRanked 2nd in the industry in sales

CompanyCreation: 1968

Headquarter: Santa Clara, CA

Sector: Technology

Industry: Semi-conductor devices

Employees: 106, 700http://www.bloomberg.com/visual-data/industries/detail/metals+mining http://finance.yahoo.com/q/pr?s=AA+Profile

http://finance.yahoo.com/q/ao?s=AA+Analyst+Opinion Grade:

2.88% decreaseAnalyst Opinion

2.532.54Worth12345

XXXXX119/47117/46BUY/HOLDBUY/HOLD

Hot newsStocks Pare Losses but Tech Sector Continues FallingIntel (INTC) Stock is the 'Chart of the Day

http://www.thestreet.com/story/13309262/1/stocks-extend-losses-after-manufacturing-slows.html?puc=yahoo&cm_ven=YAHOOhttp://www.thestreet.com/story/13309307/1/intel-intc-stock-is-the-chart-of-the-day.html?puc=yahoo&cm_ven=YAHOO http://www.cnbc.com/2015/09/30/semiconductor-stocks-are-hitting-a-key-decision-point.html?__source=yahoo%7Cfinance%7Cheadline%7Cheadline%7Cstory&par=yahoo&doc=103040874

SymbologyINTC1516V29.5INTC1516V28CompanysymbolExpiration dateExercise priceCompanysymbolExpiration dateExercise price

Technical analysis

Volatility increases

Volatility decreaseshttps://www.barchart.com/chart.php?sym=INTC&style=technical&template

Technical analysis

https://www.barchart.com/chart.php?sym=INTC&style=technical&templateBuy signalSell signalPriceSMA

Technical analysis

OverboughtOversoldhttps://www.barchart.com/chart.php?sym=INTC&style=technical&template

GreeksDelta: Theta: Vega: 0.0234Rho: New option price: $0.72 $0.4856 = $0.33New option price: $0.72 X (1-0.0302)=$0.70New option price: $0.72 X (1+0.0234)=$0.74New option price: $0.72 X (1-0.0053)=$0.72

GreeksDelta: Theta: Vega: 0.0196Rho: New option price: $0.30 $0.2718 = $0.03New option price: $0.30 X (1-0.0281)=$0.30New option price: $0.30 X (1+0.0196)=$0.31New option price: $0.30 X (1-0.0031)=$0.30

CalculationBuySell$0.72 x 100 shares = $72 per contractBreakeven point: Exercise price option premium$30 - $0.72 = $28.28$0.3 x 100 shares = $30 per contractBreakeven point: Exercise price - option premium$28.5 + $0.3 = $28.20Number of contracts113 contracts Investment: $8, 136Same amount of contracts: 113113 contracts $3, 390 Investment: $3, 390

LeverageBuySell113 contracts = 11, 300 shares$8, 136/ 29.81 per share = 282 sharesOption marketStock marketLeverage11, 300shares / 282 shares = 40.07x 113 contracts = 11, 300 shares$3, 390/ 29.81 per share = 117 shares11, 300 shares / 117 shares = 96.58x Option marketStock marketLeverage

Sell put

In the moneyAt the moneyOut the money$28.20$28.5GAINLOSS

Buy put

In the moneyAt the moneyOut the money$28.28

$30

GAINLOSS

Bear put spread

$28.28

$30

$28.20$28.5GAINLOSSMax gain $12, 204Max loss $4, 746

What happened

Intel sales 3D physics business to MicrosoftIntel reports that profit have tumbled 6.3%Target price raised by RBC capital market

Intel (INTC) Stock Up, 3D Physics Business Sold to Microsoft 02/10Intel reported that its profits tumbled 6.3 percentlast quarter, a reflection of the worldwide slump in sales of personal computers 13/10Intel(NASDAQ:INTC) climbed 2.4% after its target price was raised to 34 from 33 by RBC Capital Markets. 14/10

127

Bank of AmericaStraddle Strategy

Florent Benhayoun

STRADDLE STRATEGY

BetaBeta = 1.80

Beta>IndustryStock is more volatile than the industry

Beta = 1.77

Beta>IndustryStock is more volatile than the industry Beta = 1.46

Beta>S&PThe Industry is very volatile compare to the marketIndustry

Price History

Straddle Strategy:

We are looking for significant changes in stock price after Earnings announcement.We need a very high/low % surprise.

Q3 2014 Earnings announcementQ4 2014 Earnings announcementQ1 2015 Earnings announcementQ2 2015 Earnings announcement

Devaluation of the Chinese Yuan

Moving average

Long run Sell Signal:PriceMMA>SMA

Sell SignalPrice MMA > SMASell signalFMA < MMA < SMA

Mov Avg 3 lines Indicator:Note:In evaluating the short term, plot1 represents the fast moving average, and plot2 is the slow moving average. For the longer term analysis, plot2 is the fast moving average and plot3 is the slow moving averageConventional Interpretation - Short Term:The market is bullish because the fast moving average is above the slow moving average.Additional Analysis - Short Term:The market is EXTREMELY BULLISH. Everything in this indicator is pointing to higher prices: the fast average is above the slow average; the fast average is on an upward slope from the previous bar; the slow average is on an upward slope from the previous bar; and price is above the fast average and the slow average.Conventional Interpretation - Long Term:The market is bullish because the fast moving average is above the slow moving average.Additional Analysis - Long Term:The market is EXTREMELY BULLISH. Everything in this indicator is pointing to higher prices: the fast average is above the slow average; the fast average is on an upward slope from the previous bar; the slow average is on an upward slope from the previous bar; and price is above the fast average and the slow average.

184

Relative Strength Index

OversoldShort term: Demand Price Long term: Price roseOverbought Short term : Demand Price Long term : Price fell

RSI is in neutral territory

Conventional Interpretation:RSI is in neutral territory. (RSI is at 57.42). This indicator issues buy signals when the RSI line dips below the bottom line into the oversold zone; a sell signal is generated when the RSI rises above the top line into the overbought zone.Additional Analysis:RSI is somewhat overbought (RSI is at 57.42). However, this by itself isn't a strong enough indication to signal a trade.185

2015Slow economic growthMajor Events

FED keeps interest rates low

Treasury prices remains highFutures prices stay high

http://www.usinflationcalculator.com/inflation/current-inflation-rates/http://data.bls.gov/timeseries/LNS14000000186

-40%-27%-16%

-7%LOW INTEREST RATES EXPECTATIONTREASURY PRICES INCREASE

Traders Dont See Fed Moving Until At Least March, Futures ShowGulf Widens Between Fed Forecasts and Signal From Futures MarketHSBC's Major, Who Called 2014 Bond Rally, Cuts Yield Forecasts

Traders Dont See Fed Moving Until At Least March, Futures Showhttp://www.bloomberg.com/news/articles/2015-10-02/traders-don-t-see-fed-moving-until-at-least-march-futures-showGulf Widens Between Fed Forecasts and Signal From Futures Markethttp://www.bloomberg.com/news/articles/2015-10-03/gulf-widens-between-fed-forecasts-and-signal-from-futures-marketHSBC's Major, Who Called 2014 Bond Rally, Cuts Yield Forecastshttp://www.bloomberg.com/news/articles/2015-10-08/hsbc-cuts-treasury-yield-forecasts-on-shallow-fed-rate-path-bets

188

Supply and Demand curvePriceQuantityP1DSP

P2

Best/Worst CaseOur caseBest Case Worst caseBought$128,78$128,78$128,78Sold$129,33$129,62$125,70# of contracts303030Unit per contract1 0001 0001 000Long Amount$3 863 400,00$3 863 400,00$3 863 400,00Sell Amount$3 879 900,00$3 888 600,00$3 771 000,00Initial Investment$48 690,00$48 690,00$48 690,00Initial Margin$1 623,00$1 623,00$1 623,00Leverage79,3579,35 79,35 Total Gain/Loss$16 500,00$25 200,00-$92 400,00Return0,43%0,65%-2,39%Bought10/7/1510/7/1510/7/15Sold10/14/1510/14/1511/9/15# of days8 8 33 Annualized return19,22%29,35%-26,09%

BoughtBest CaseWorst CaseSold

What happened?

Based on rate hike expectations

Wage gains could pop to 2.6 percent in DecemberWaiting too long for liftoff would raise risk of recession

https://finance.yahoo.com/news/proshares-announces-etf-share-splits-203000108.htmlhttp://www.ibtimes.com/us-jobs-report-expected-confirm-federal-reserve-rate-hike-expectations-2172485INFLATION191

Futures

Analyst recommendation

Short term

Long positionS&P 500 IndexHealthcare sector in an upward trendBullish market indicatorLong position on the S&P 500

Symbology

ES/Z5IndexsymbolExpiration dateDec 2015S&P E-MINI 500 IDX DEC15

Contract specification

Calculations$50, 000 / $3850 = 12.99 = 12 contracts ContractInvestmentMaximum investmentMargin3, 850 x 12 contracts = $46, 200 Leverage $1, 974 X 50 S&P Index = $98, 700S&P IndexPrice paidMultiplier$98, 700 / $3850 = 26x Contract

Technical indicators

Moving average

http://www.barchart.com/charts/futures/ESZ15&style=technical

Buy signalSell signalPriceSMA

Relative strength index

http://www.barchart.com/charts/futures/ESZ15&style=technical

OverboughtOversold

Bollinger bandhttp://www.barchart.com/charts/futures/ESZ15&style=technical

Volatility increases

Volatility decreases

Fundamental Analysis

Price history

Chinese Crisis http://www.zacks.com/stock/news/180936/stock-market-news-for-july-08-2015http://www.valueline.com/Markets/Daily_Updates/Stock_Market_Today__July_27,_2015.aspx#.VheHmi7tmko http://www.zacks.com/stock/news/190247/stock-market-news-for-september-16-2015 http://www.zacks.com/stock/news/191596/stock-market-news-for-september-28-2015http://uk.businessinsider.com/wall-street-says-to-buy-biotechs-2015-10?r=US&IR=T Good performance from the S&P 500s giants

Hillary Clinton's tweet made healthcare sector crash

Hot newsUS STOCKS-S&P 500 reaches three-week high as health stocks rally

http://finance.yahoo.com/news/us-stocks-p-500-reaches-203135630.htmlhttps://finviz.com/map.ashx?t=sec&st=w1

Healthcare sector

Three-week high

Reached deals to cover two costly new cholesterol drugs

204

Hot newsThis bullish indicator is screaming buyhttp://finance.yahoo.com/video/bullish-indicator-screaming-buy-173000774.html

Bullish when the price crosses the 50 day average October 7th 2015

What happened

Biotech giants under heavy selling

Biotech and energy giants rose

Fears of slowing growth in China

Key biotech stocks including Celgene Corporation (CELG-Analyst Report), Amgen Inc. (AMGN-Analyst Report), Gilead Sciences Inc. (GILD-Analyst Report), Regeneron Pharmaceuticals, Inc. (REGN-Analyst Report) and Biogen Inc. (BIIB-Analyst Report) increased 4.3%, 4.8%, 2.8%, 5.6% and 1.2%, respectively - See more at:

on renewed fears of slowing growth in China and another bout of selling in biotech shares. 13/10

206

Best case Worst caseOur caseBest Case Worst caseBought$1 974,00$1 974,00$1 974,00Sold$1 999,25$2 110,25$1 971,00# of contracts121212Unit per contract505050Long Amount$1 184 400,00$1 184 400,00$1 184 400,00Sold Amount$1 199 550,00$1 266 150,00$1 182 600,00Initial Investment$46 200,00$46 200,00$46 200,00Initial Margin$3 850,00$3 850,00$3 850,00Leverage25,64 25,64 25,64 Total Gain/Loss$15 150,00$81 750,00-$1 800,00Return1,28%6,90%-0,15%Bought10-7-1510-7-1510-7-15Sold10/13/1511-3-1510-9-15# of days 6 26 2 Annualized return76,75%95,57%-27,36%

WorstESZ5 $1971.00SoldESZ5 $1999.00BestESZ5 $2110.00BoughtESZ5 $1974.00WorstESZ5 $1971.00BestESZ5 $2110.00WorstESZ5 $1971.00BestESZ5 $2110.00WorstESZ5 $1971.00BestESZ5 $2110.00WorstESZ5 $1971.00BestESZ5 $2110.00

Shorting the Renminbi

Futures Symbology/Z5Renminbi Currency Symbol (can also be CNY)Symbol for month of DecemberSymbol for the year 2015RMB

Why in 30 secondsWhy shorting the Yuan vs. the Dollar?PBOC is repegging the CNY to the USD because China wants its currency to enter IMFs SDR Will become a reality on October 1st, 2016.

BUT, the Chinese economy is slowing down. Desperate need for QE.

China is historically known for its dumping strategy. Chinas favorite move is to dump its products in foreign markets using a devalued CNY.

Large capital outflows threatens Chinese economy stability.

The Fed will soon raise Interest Rates and thus pressure China, which would have to sell-off many securities and US Treasuries to keep the CNY peg to the USD.

I believe the devaluation of the Yuan in August 2015 was China delivering a sample test on its economy to weigh impact of further intentional devaluation of the Renminbi.

This is part of our risky investment strategy. We basically bet on something that has few chances of happening within our trading scope.

ContractSpecifications1 Contract = CNY 1,000,000Traded at the Chicago Mercantile Exchange Globex (electronic futures trading platform).The contracts ends before market opens on the second Beijing business day immediately preceding the third Wednesday of the contract month.Our contract was a December 2015 contract, which indicates that it would would have ended on Monday, 14th of December 2015 at 9.00 AM Beijing time.

Fundamental Analysis

Chinas Business Cycle over past 15 yearsSlowdown + Revaluation for past 7 years

China suffers from the 2008 crisis bought American debt + massive cut in exportsSLOWDOWNASIAN CRISIS

China still in convergence Chinese goods are more demanded than Japanese goods.EXPORTSFOREIGN RESERVES UP

Chinese desire to set the CNY as a reserve currency Enter the SDR basket.?

213

Interest Rates

Perpetual 25 BptsHad to cut IRs several times six times in 2015+25 Bpts in Q1 2016?

If Chinas Interest Rate remains high at around 4.5%, it has lost about 150 Bpts since the beginning of 2015. This most certainly is the consequence of China being in deficit for four quarters in a row. By cutting IRs, China can limit losses but refuses to play it like the US and Japan, setting near-zero Interest Rates. Instead, China prefers directly injecting funds in policy banks, allowing China not to buy securities. The US fed funds rate is very close from being hiked by the Fed and China will have to make its move before then. I personally believe that the Fed will most likely increase Interest Rate at the beginning of 2016.

Sources: http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20150811000132&cid=1102http://www.bloomberg.com/news/videos/2015-10-05/why-china-may-have-to-devalue-the-yuan-furtherhttp://www.tradingeconomics.com/china/indicatorshttp://www.tradingeconomics.com/united-states/indicators

214

China's Foreign Exchange Reserves Drop $43.26 Billion in SeptemberChina's foreign-exchange reserves dwindled further in September, a trend that likely will force the country's central bank to step up monetary easing.

Beijing traditionally has relied on an influx of capital for its money supply--not a problem as foreign-exchange reserves piled up when the central bank bought dollars from the country's exporters.

With inflows turning into outflows as the Chinese economy slows, the bank finds itself having to look for other channels--such as direct lending to financial institutions and government bond buying--to create money and keep liquidity flowing.

The People's Bank of China on Wednesday said currency reserves fell $43.3 billion in September to $3.51 trillion as more funds left the country, the fifth consecutive monthly drop but a less sharp one than the record $93.9 billion plunge the previous month.

Despite what has appeared to be extraordinary credit-easing measures by the PBOC over the past year, the central bank has fallen short, economists say. Not only have its efforts failed to jump-start productive lending to spur growth, but the lower foreign-exchange inflows have meant that the PBOC's own assets haven't kept pace with growth.The PBOC has been a bit behind the curve on easing. But the falling reserves will make it more likely for the central bank to speed up its loosening efforts in the coming months.

a once-in-a-decade transition in China's monetary-policy framework.

From January through August, the PBOC pumped around 1 trillion yuan ($156 billion) into China's financial system through a combination of measures such as open-market operations and direct lending to banks.

But despite such loans, which count as assets on the PBOC balance sheet, the central bank's assets have fallen since the end of last year and have shrunk as a percentage of China's gross domestic product--indicating that money creation hasn't kept pace with the scale of the economy.DEVALUATION NEEDED

But in recent months, as the economy has continued to sputter, the central bank, which answers to the Chinese leadership, has caved in to political pressure and stepped up its easing efforts. Since November, it has broadly reduced banks' reserve requirements three times and slashed interest rates five times.Many analysts expect several further cuts in reserve requirements before the end of the year to offset capital outflows.

Another path that some analysts say the PBOC may take is a bond-buying program similar to those adopted by its counterparts in developed countries. It certainly has room to do that: Government bonds represented only 4.5% of all of the 33.7 trillion yuan in assets held by the Chinese central bank as of June, while foreign-exchange reserves accounted for 82%. By comparison, more than 50% of the assets owned by the U.S. Federal Reserve consisted of government securities.

So far, officials at the PBOC have repeatedly dismissed the idea of it launching a direct bond-buying program, saying China doesn't need a so-called QE to help bolster growth. DEVALUATION IDEA PREVALENT

If China wants to hit its annual growth target of 7% this year, this is the time for a decisive easing move."

Additional: The PBOC under Zhou Xiaochuan, its long-serving governor, has been wary of loosening its monetary policy aggressively for fears that opening the credit spigot could add to China's debt burden, already high following a massive stimulus program during the 2008-09 global financial crisis. An analysis by consultancy McKinsey & Co. shows that China's debt load has increased to 282% of its GDP last year from 158% in 2007. Just as the central bank tightened the reserve requirements in the past to mop up excess liquidity in the market, it's only logical for it to lower the requirements now to counter the pressure from capital outflows, said Zhang Ming, a senior economist at the Chinese Academy of Social Sciences.Another path that some analysts say the PBOC may take is a bond-buying program similar to those adopted by its counterparts in developed countries. It certainly has room to do that: Government bonds represented only 4.5% of all of the 33.7 trillion yuan in assets held by the Chinese central bank as of June, while foreign-exchange reserves accounted for 82%. By comparison, more than 50% of the assets owned by the U.S. Federal Reserve consisted of government securities.The vast majority of the PBOC's balance sheet--82% as of June--was made up of foreign-exchange reserves that had piled up over the years as the central bank bought dollars from the country's exporters.The small share of its government holdings reflects the rather limited size of China's bond market, according to analysts and economists. In addition, the PBOC so far has only bought and sold government bonds on a small scale, with the main goal to adjust liquidity in the interbank market where banks borrow from each other.Now, as the Chinese central bank is considering ways to prevent a stranglehold on liquidity in the financial system, some economists say the PBOC should expand its holdings of government securities by directly purchasing local-government bonds held by banks. The central bank has already put in place a program that allows banks to use government bonds as collateral to borrow from the central bank--which many dubbed the Chinese version of "quantitative easing."Meanwhile, many analysts say more interest-rate cuts are needed, and that the U.S. Fed's decision not to raise rates at its September meeting means capital is less likely to flee China for the U.S., providing the PBOC with a window to lower rates at home.

Source: http://www.morningstar.com/news/dow-jones/TDJNDN_201510075442/chinas-foreign-exchange-reserves-drop-4326-billion-in-september-update.html215

Chinas Foreign Exchange Reserves

Truckload of money, which makes of China the richest country in the world in terms of foreign reserves. At first, the drop was due to capital outflows and now, it is China delivering the first open-market operations of its QE.

The Fed does not increase IRs PBOC devalues CNY0PriceOutputD1S1Eq. p.Eq. o.

D2New Eq. p.New Eq. o.

equilibrium

New equilibriumCapital inflows would increase, investors would come to China and flee the US.Strong impact on GDPDemand for CNY increases, GDP increases.

The Fed does not increase IRs PBOC eases with Buy-back ops0PriceOutputD1S1Eq. p.Eq. o.

S2New Eq. p.New Eq. o.

equilibriumNew equilibriumCapital inflows would increase, investors would come to China and flee the US. CNY may be devalued.Strong impact on GDPSupply for CNY increases, GDP increases.

Technical Analysis

Bollinger Bands

Patterns proper to fixed exchange ratesOff-track adjustments

Off-track adjustmentsAnnounces a bull trend Announces Bear marketAnnounces Bear market

Since 2005, the CNY was officially unpegged from the USD. Instead, the Yuan was pegged to a bunch of currencies of the world using the CPI method. The Chinese currency is listed under a fixed exchange rate but since 2005, it may float a little more freely than it did when it was pegged to the USD. We could say that the CNY is a semi-floating currency but it definitely is different from other major partners currencies. Some candles frankly break through the Bollinger Bands limits for one day and then they readjust. This curve behavior is unusual and is due to PBOC interventions to correct trajectories or when one of the currencies on which the Yuan is pegged experiences a sudden volatility rise. The other currencies then cover this bounce and the CNY readjusts its trajectory. This is why it can be called a semi-floating currency. To be considered a floating currency, the PBOC would have to unpeg the Yuan from every currency it is pegged to today. This is unlikely to happen in a near future as China depends on its devalued currency for exports and more broadly GDP. 220

3 Simple Moving Averages

Death Cross because of CNY devaluation.Death Cross forming itself.

Death Cross followed by bear market.Golden Cross followed by bull market.

RSIDo not Buy, it is too late, stock is overbought.Do not Sell, it is too late, stock is oversold.Perfect time to buy or short

$ 50,000 - $ 10 = $ 49,990 Base Investment AmountStocktrak CommissionReal Amount for Investment $ 49,990 /$ 1,500/contract=33Real Amount for InvestmentMargin at t=0Contracts Shorted$ 1,500/contractx33= $ 49,500 Margin at t=0Contracts ShortedTotal Investment 1=CNY 1,000,000ContractUnits33xCNY 1,000,000=CNY 33,000,000Contracts ShortedUnits per ContractTotal Units Shorted $ 49,500x USD=CNY 6.4267 =CNY 318,121.65Total InvestmentCNY per USD (Bid)Could Have PurchasedCNY 33,000,000/CNY 318,121.65=103Units per ContractCould Have PurchasedLeverage

Transaction

Shorted 33 futures contracts of CNY against USDOur caseBest CaseWorst CaseShort$ 0.1555$ 0.1555$ 0.1555Cover$ 0.1556$ 0.1545$ 0.1565# of contracts333333Shorted Investment$ 49,500$ 49,500$ 49,500Covered Amount$ 49,517.50$ 49,167.44$ 49,803.92Unleveraged Change($17.50)$332.56($303.92)Leverage103.70103.70103.70- Comission($ 10)($ 10)($ 10)+ Dividend - - - Short on10/8/1510/08/1510/08/15Cover on30/11/1511/23/1510/30/15# of days534622Total Gain/Loss($ 1,815)$ 34,485($ 31,515)USD Return %(3,67%)69,67%(63.67%)Annualized return %(24,91%)545,22%(1041,82%)USD Investment $ 49,500.00 Open Short CNY=USD$ 0.1555Close Cover CNY=USD$ 0.1556Appreciation %(0,0353%)End USD $ 47,685.00 Unleveraged USD Return %(0.0353%)Leverage103.70Real USD Return %(3.67%)1st methodReal USD Return %(3.67%)2nd method

Shorted

CNYUSD=0,1556

0.00% return11/30/201510/30/2015Worst Case

CNYUSD=0,1565

(59.52%) return11/30/2015Best Case

CNYUSD=0,1545

72.87% returnCovered

CNYUSD=0,1557

(3.67%) return10/08/2015What drove my investment? :

China cut interest rates by 25 Bpts on October 23rd, 2015. Interest rate at 4.35%.

Reluctance of China to apply QE (too proud to apply an American-style QE)

Making a note of China Central Banks open market operations, PBOC drains a net 50 bln Yuan for the week, versus a net 50 injection last week. Peg seems to be priority.

Last bullet: Fxstreet website: http://www.fxstreet.com/news/forex-news/article.aspx?storyid=86b33459-da68-4a8e-8ddc-c6b7ec6de4e7224

Long position Crude Oil

Fundamental Analysis

News - OPECUS oil settles up 4.9%, at $48.53 a barrel"We have reduced the probability of a return to the $37-38 area per nearby WTI, (Jim Ritterbusch)"We will maintain a long standing view that price declines below this support level are virtually off of the table. (Jim Ritterbusch)Global oil demand will grow by the most in six years in 2016 while non-OPEC supply stalls. (CNBC)Demand is expected to rise 270,000 bpd to 95.2 million barrels a day, up 0.3 percent from September's forecast. (CNBC)OPEC Secretary-General Abdullah al-Badri said at a conference in London that OPEC and non-OPEC members should work together to reduce the global supply glut. (CNBC)

Demand for oil expected to increase Price is expected to rise Supply for oil expected to fall Price is expected to increase

http://www.cnbc.com/2015/10/05/crude-up-slightly-in-early-asian-trade-russia-mulls-oil-talks.html227

News - Russia

Putin brings geopolitical risk back into oilRussia's military buildup and bombing campaign in Syria this week rekindled the security premium in oil prices. (CNBC)While the supply and demand fundamentals of oil remain overwhelmingly bearish or negative for prices, Russia's involvement caused prices to surge higher the past two weeks. (CNBC)Prices rallied again earlier this week, on news of the initial bombing sorties carried out by the Russian air force. (CNBC)

Instability in the Middle East Increase Price of oil expected to rise

Iraq Kuwait war 1990

US Invasion in Iraq

Russian Intervention in Syria

http://www.cnbc.com/2015/10/02/putin-brings-geopolitical-risk-back-into-oil.html228

Supply and Demand CurvePriceQtySD

Demand increase

Supply decrease

SD

Analyst Opinion

SymbolCL/X5Crude Oil WTI/Nov 15

Contract Specification

NYMEX WTI crude oil is traded at the New York Mercantile Exchange

1 Contract contains 1000 barrels of oilFor 11 contracts: 11 x 1000 barrels = 11,000 barrels

Trading terminates on October 21st

The value changes by $10.00 every time price moves by 1 cent

Calculation

Margin $4510,00 Investment $50000,00 Multiplier1000BarrelsPrice of the crude oil48,92BarrelsNumber of contracts = $50000,00 =11contracts $4510,00 Actual Investment $4510,00 x11contracts $49610,00 Total Price1000 barrelsx11 contractsx $48,92 = $538120,00 Barrel Total number of barrels1000x11 contracts= 11000 barrels contractLeverage $538120,00 =10,85x $49610,00

Technical Analysis

Moving average

Price>SMA(3)>SMA(10)>SMA(20)

Golden crossGolden crossGolden crossGolden crossDeath crossDeath crossDeath cross

Bollinger bands

?Price hits the upper band of the Bollinger bands Sell signal

MACD Oscillator

Buy signal when we bought WTI

Relative Strength Index

70No overbought signal

Sold$46.64Best$50.92Worst$44.86Bought$48.92Best/Worst case

Best/Worst caseFuturesWTI oil Long PositionSymbolCL/X5Our caseBest Case Worst caseBought$48,92$48,92$48,92Sold$46,64$50,92$44,86# of contracts111111Unit per contract100010001000Long Amount$538120$538120$538120Sell Amount$513040$560120$493460Initial Investment$49610$49610$49610Initial Margin$4510$4510$4510Leverage10,85 10,85 10,85 Comission-$20-$20-$20Total Gain/Loss-$25080$22000-$44660Return-50,55%44,35%-90,02%Bought10/7/1510/7/1510/7/15Sold10/13/1510/9/1510/20/15# of days 7 3 14 Annualized return-2599,94%5321,51%-2314,86%

What drove the price?

Rumors the Fed will increase the Interests in October

Rumors the Fed will increase the Interests in November

OPEC Countries failed reaching an agreement concerning supply limit

Elon Musks opinion

CocoaShort Position

Hot NewsThe bank is bearish on crude oil, aluminum, platinum, iron ore, cocoa and wheat in the next three to six months.http://www.bloomberg.com/news/articles/2015-10-05/commodity-collapse-has-more-to-go-as-goldman-to-citi-see-lossesCommodity Collapse Has More to Go as Goldman to Citi See Losses -10/05/15 Bloomberg

Rule #1: The trend is your friend

244

SymbologyCC/Z5Commodity ticker:CocoaDelivery month:December 2015

Contract Specification

ICEUS Cocoa is traded at the Intercontinental Exchange

1 Contract contains 10 metric tonnes of cocoaFor 62 contracts: 62c x 10 metric tonnes = 620 metric tonnes contract

Trading terminates on December 16th

The value changes by $0.10 every time price moves by 1 cent

Calculation# of contractsInvestmentLeverageTotal price$50,000 = 62 contracts $800/c $800/c x 62c = $49,600$1,900,300 / $49,600 = 38.31 X

Initial Investment: $50,00010 metric tonnes x 62c x $3,065 = $1,900,300 Contract metric tonnes

Analyst Opinionhttp://www.barchart.com

248

Trendspotter

Bearish trendPrice likely to fallBearish signal when we shorted cocoa

Our Case, Best Case & Worst CaseLoss:$1,900,300 $1,954,240 = $(53,940) Total Loss$(53,940)

Hot News #2Tuesday's bounce is likely traders buying futures to cover their bearish bets in case European grindings come in higher. said Julie Wernauhttp://www.nasdaq.com/article/cocoa-prices-bounce-ahead-of-demand-data-oj-rises-on-fewer-oranges-20151013-01008Cocoa Prices Bounce Ahead of Demand Data; OJ Rises on Fewer Oranges-10/13/15 Nasdaq.comCocoa was priced during 3 weeks for an anticipation in weaker demand while European demand have been less bearish than expected.West Africa see rainfall after two months of drier than normal weather.The trend was not my friend!Europe is the largest consumer of chocolate in the world.

251

Shorted $3,065Best $3,026Worst $3,406Covered $3,152Our Case, Best Case & Worst Case

Shorted $3,065Best $3,026Worst $3,406Covered $3,152Our Case, Best Case & Worst Case

Futures Short Position Copper

http://www.infomine.com/ChartsAndData/ChartBuilder.aspx?gf=110563.USD

Copper- Industry OverviewDefinition ApplicationsMetalChemical elementExtracted or Minded Electrical & Thermal conductorArchitectureTube, pipe and fittingsTelecommunicationAutomotive

http://www.infomine.com/ChartsAndData/ChartBuilder.aspx?gf=110563.USD255

Biggest Companies

1.8 million tonnes

1.47 million tonnes

1.30 million tonnes

1.20 million tonnes

665,000 tonnes

636,000 tonnes

380,000 tonnes 506,000 tonnes

504,000 tonnes

455,000 tonnes

Future SymbolHG/Z5COPPER/DEC 15Commodity ticker:High Grade CopperExpiration month & year:December 2015CommodityCopper Expiration monthDecember Expiration year2015

Analyst Opinion

Contract Specification

Commodities Mercantile Exchange Where ?

When?Expiration

How big ?

25,0000 pounds/contract 25,000 pounds x 11 = 275,000 pounds

How big is each contract? How much are you betting on? Calculate and show your leverage calculations.

259

Calculation N of contract

$ 50,000 /($ 4,400/contract) = 11 contracts Investment

11 contracts * $ 4,400/contract = $48,400Invest/price

$48,400 /$ 2.3830 lbs = 20,310 lbs

25,000 lbs/contract * 11 contracts = 275,000 lbs x $2.3830 = $655,325Multiplier Leverage

$655,325 / $48,400 = 13XPrice paid $ 2.3830/lbs

Technical indicators

Copper is trading firmly below its downward trend line on a daily time frame. The volatility is low as the price is trading within the Bollinger band and as long as the price is trading within this, the volatility will remain subdued. The RSI and MACD are trading inline with the price action which means that the bias remains towards the downside261

Bollinger Bands, Moving average & RSI

Bollinger Bands

Volatility

Moving Average

SELL signalPriceSMA

Closer from overbought 262

MACD

MACD below SMA = Bearish signal SELL = Price MACD above SMA= Bullish signalBUY = Price

Trend spotter

Bullish TrendBearish Trend

Neutral TrendBullish Trend (BUY= P)Bearish Trend (SELL=P)

Fundamental Analysis

Supply + Demand =P WHY ??

Incentive for extraction today rather than tomorrow Encourages speculators to shift from commodity to treasury billsMost commodities are priced in dollars, $ = internationally traded commodities (in$) Hike in interest rate

China represents 45% of global demand for copper Then, shift to a new normalEconomic slowdown Less demand for housing, construction, cars( wiring, piping general industry) Chinese industrial profits declined 8.8 % (2014)

CNYUSD

Strategy Fit

DEMAND

SUPPLY

Global economic slowdown China Short Run

Drop in demand because of growth slowdown Long Run

Emergence of middle class =Housings, cars, electronics, industry

Supply

SUPPLY (excess in reserve)

DEMAND (economic conditions and policies)

PRICE = SHORT POSITION

267

What Happened ?

China growing concerns+Glencore, low commodity price outlookCost of Copper at a 6 year low

Decreasingdemand China growth & industrial production slowdownEmerging market stocks = Raw materialsYellen set up stage for Dec IR hike + China missing arbitrage

BEST/WORST

54.14%

Week 4

270

LONG POSITION ON GERDAU (GGB)

What are ADRsCreation in 1927Level 1: - Most basic type of ADR - Easy and inexpensive way to gauge interest for its securities in North America- Have the loosest requirements from theSECLevel 2:- Listed on an exchange or quoted on Nasdaq - Have slightly more requirements from the SECLevel 3: - Are able to raise capital and gain substantial visibility in the U.S. financial markets.Flexibility LiquidityIncrease in capitalCompanys visibility in the USImprovement of price parity with the US

Easy to buyPortfolio diversification, access to more companiesAvailability of information on the companyDividends and capital gain in USD

ADRs are attractive for both the Issuer and the Investor, BUT they do not eliminate currency and economic risks in the companys home country. IssuerBuyer3 levels of ADRs

272

Company Overview

190140,000 employees$16BNYSESteel CompanyPorto Allegre

- Creation by Joao Gerdau in 1869 in Agudo273

Analysts opinion

BEARISH

Growth Analysis

The company has outperformed compared to the industry and the sector this year

For the coming years, the company is expected to do better than the industry and the sector

Bollinger bands

Volatility increasesVolatility decreasesLow volatilityOversold market that may continue to become more oversold

276

Moving Average

Fast moving averageMiddle moving averageSlow moving averageBuy signalFMA > MMA > SMASell signalFMA < MMA < SMA

Extremely bearish

OversoldShort term: Demand Price Long term: Price roseOverbought Short term : Demand Price Long term : Price fellRelative Strength Index

Bearish trend

RSI is low which means it can turn into a bullish trend

Use of steel

Steel use:RoadsRailwaysAerospaceBuildingsPipelinesCarsBolts279

Steel production by country (million tons)Steel production growth rate

China is the biggest producer and user of steel280

PQCHINAChinese Demand collapsed as growth slowdownDemand is decreasing with pricesBanks are tightening lending

China output collapsed by 20%

China input decrease

http://www.bloomberg.com/news/articles/2015-10-28/china-steel-chief-says-demand-evaporating-at-unprecedented-speed

PQINDIASteel import tax increaseCost of production increaseIndian output decreaseIndian input collapse

http://www.bloomberg.com/news/articles/2015-10-08/steel-imports-by-india-slow-in-september-on-import-tax-increase

Chinese export of steel decreaseIndian export of steel decreaseBrazil export of steel will increase

Gerdaus revenue will increase

Q

PBRAZIL

Even though Brazilian fundamentals are really bad, Gerdau has an international exposure compared to its Brazilian competitorsHow Gerdau can succeed amid economic crisis?With a large North-American business, Gerdau saw sales pick up in OctoberAs Indian and Chinese exports for steel will decrease, Gerdau will gain market shares

http://www.bloomberg.com/news/articles/2015-10-29/fortunes-diverge-for-brazil-s-steel-barons-amid-economic-crisis

CalculationBRL = USD0.25902BRL100,000ContractBRL100,000 = USD25,902USD25,902 / USD1.39 = 18,634 sharesshareReal investment: 18,634 shares X $1.39 = USD25,901share

Best/Worst CaseOur caseBest CaseWorst CaseBought$1,44$1,44$1,44Sold$1,58$1,73$1,31# of shares18 63418 63418 634Initial Investment $ 26 832,96 $ 26 832,96 $ 26 832,96 Sold Amount $ 29 354,14 $ 32 236,82 $ 24 410,54 + Dividend0,010,010,01Bought on11/02/1511/02/1511/02/15Sold on11/30/1511/25/1511/17/15# of days292416Total Gain/Loss $2 707,52 $5 590,20 $-2 236,08 Return %10,09%20,83%-8,33%Annualized return %125,26%312,50%-187,50%

BoughtBest CaseWorst CaseSold

What happened?

Gerdau SA, raised about $239 million in a private transaction to help repay debtNucor Corporation has agreed to buy Gerdau Long Steel's Bright Bar-6%+15%Gerdau SA announced to pay $0.01 of dividend on November 27th

http://www.reuters.com/article/gerdau-stocks-offering-idUSL1N13C22420151117http://www.zacks.com/stock/news/197613/nucor-to-acquire-gerdau-long-steels-bright-bar-assets287

ADRBrazilian Real - Long Position

Standard & Poors Bond Rating

Source: Eikon as of 9/30/15. Reflects most recent data available. Credit ratings by Standard & Poor's.Emerging markets: High yield because of uncertain economic conditions.China: uncertain growthBrazil & Russia: Recession BBB-

https://www.putnam.com/individual/infographics/global-bond/289

GDP Annual Growth rate

Consumption decreaseInvestment decrease2.7 %-2.6 % -5.3 %

Petrobras ScandalMarch 2014

GDPSource: worldbank.org

Economy:#1 of Latin America#7->9 of the World

20142015

Brazil GDP is the seventh wealthiest economy of the world in 2013 just behind France and UK.Moreover, Brazil is the first economy of the Latin America far above Mexico and Argentinahttp://knoema.fr/IMFWEO2015Oct/imf-world-economic-outlook-weo-october-2015291

Inflation Rate

+3.37%

Labor Force

Below expectation (7,7%)Economy is going better than expected+3.3 %

Exports vs. Imports

Partners: China 19% US 10% Argentina 7.8% Netherlands 6.6%

Partners: China 15%US 14%Argentina 6.9% Germany 6.4%South Korea 4.1%ExportsImports

ImportsExportsTrade Balance

Brazil exportation are $244.8 billion for $241.4 billion of importation in 2013.The main commodities exported are transport equipment, iron ore, soybeans, footwear, coffee, and autos. Brazil principal export partners are China 17%, USA 11.1%, Argentina 7.4% and Netherland 6.2%The commodities imported by Brazil are machinery, electrical and transport equipment, chemical products, oil, automotive parts and electronics. China (15.3%), USA (14.6%, and Argentina (7.4%) are the main partner for Brazil importation.China, USA and Argentina are the principal partner for trade exchange due to the BRICS (Brazil Russia India China and South Africa).

294

Brazilian Interest rate

IR increaseReturn increase14.25%11.25%

The Central Bank of Brazil kept its key interest rate on hold for the third consecutive meeting at 14.25 percent on November 25th, the highest in nine years, as policymakers struggle to curb rising inflation amid economic contraction.295

USD BRL (1 years)US$=BRL3.7966US$=BRL2.6004+46%

Too High

Brazils real has weakened 23 percent in the past two years, to a close of 2.642 per U.S. dollar on Jan. 15. While a falling currency makes Brazil less expensive for foreign tourists, the real would have to drop to 3.2 to 3.5 per dollar to make a concrete difference, said HotelInvests Canteras.

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Analyst Opinionhttp://www.barchart.com

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MACD Oscillator

Buy signal when we have long the Brazilian RealMACD crosses down the Signal LineMACD:12 average period minus26 average periodMACD Signal Line:9 period moving average of the MACD

Period 1: The first moving average period for which to compute the indicator.Period 2: The second moving average period for which to compute the indicator.Period 3: The moving average period of the signal line.298

Moving averageGolden crossGolden crossDeath crossDeath cross

At the long date:Golden CrossPrice than Strike price

What if - YUM)Straddle/StrangleWhat If CALLPUTPUTMax lossERROR:#REF!Strik Price ERROR:#REF!Stock PriceERROR:#REF!Max gainERROR:#REF!Call Options Put OptionsOption PriceERROR:#REF!Option PriceERROR:#REF!Stock PriceERROR:#REF!Stock PriceERROR:#REF!What if $ - 0

TotalcallputtotalBuyERROR:#REF!Sell$ - 0TotalSell$ - 0BuyERROR:#REF!stock pricestock priceProfitERROR:#REF!ProfitERROR:#REF!Call OptionPut Optionx Number of shares in OPERROR:#REF!x Number of shares in OPERROR:#REF!What if - Stock PriceCall Option Max profit/LossPut Option Max profit/Loss Portfolio Max profit/LossTotal ProfitERROR:#REF!Total ProfitERROR:#REF!0ERROR:#REF!0ERROR:#REF!ERROR:#REF!ERROR:#REF!- InvestmentERROR:#REF!- InvestmentERROR:#REF!3ERROR:#REF!3ERROR:#REF!ERROR:#REF!ERROR:#REF!6ERROR:#REF!6ERROR:#REF!ERROR:#REF!ERROR:#REF!Total Gain/LossERROR:#REF!Total Gain/LossERROR:#REF!9ERROR:#REF!9ERROR:#REF!ERROR:#REF!ERROR:#REF!12ERROR:#REF!12ERROR:#REF!ERROR:#REF!ERROR:#REF!ROIERROR:#REF!ROIERROR:#REF!15ERROR:#REF!15ERROR:#REF!ERROR:#REF!ERROR:#REF!18ERROR:#REF!18ERROR:#REF!ERROR:#REF!ERROR:#REF!Total Gain/LossERROR:#REF!21ERROR:#REF!21ERROR:#REF!ERROR:#REF!ERROR:#REF!24ERROR:#REF!24ERROR:#REF!ERROR:#REF!ERROR:#REF!27ERROR:#REF!27ERROR:#REF!ERROR:#REF!ERROR:#REF!What if $ 30.0030ERROR:#REF!30ERROR:#REF!ERROR:#REF!ERROR:#REF!33ERROR:#REF!33ERROR:#REF!ERROR:#REF!ERROR:#REF!BuyERROR:#REF!Sell$ 30.0036ERROR:#REF!36ERROR:#REF!ERROR:#REF!ERROR:#REF!Sell$ 30.00BuyERROR:#REF!39ERROR:#REF!39ERROR:#REF!ERROR:#REF!ERROR:#REF!ProfitERROR:#REF!ProfitERROR:#REF!42ERROR:#REF!42ERROR:#REF!ERROR:#REF!ERROR:#REF!x Number of shares in OPERROR:#REF!x Number of shares in OPERROR:#REF!45ERROR:#REF!45ERROR:#REF!ERROR:#REF!ERROR:#REF!Total ProfitERROR:#REF!Total ProfitERROR:#REF!48ERROR:#REF!48ERROR:#REF!ERROR:#REF!ERROR:#REF!- InvestmentERROR:#REF!- InvestmentERROR:#REF!51ERROR:#REF!51ERROR:#REF!ERROR:#REF!ERROR:#REF!54ERROR:#REF!54ERROR:#REF!ERROR:#REF!ERROR:#REF!Total Gain/LossERROR:#REF!Total Gain/LossERROR:#REF!57ERROR:#REF!57ERROR:#REF!ERROR:#REF!ERROR:#REF!60ERROR:#REF!60ERROR:#REF!ERROR:#REF!ERROR:#REF!-0.73.672.970.5ROIERROR:#REF!ROIERROR:#REF!63ERROR:#REF!63ERROR:#REF!ERROR:#REF!ERROR:#REF!-0.73.172.470.566ERROR:#REF!66ERROR:#REF!ERROR:#REF!ERROR:#REF!-0.72.671.970.5Total Gain/LossERROR:#REF!69ERROR:#REF!69ERROR:#REF!ERROR:#REF!ERROR:#REF!-0.72.171.470.572ERROR:#REF!72ERROR:#REF!ERROR:#REF!ERROR:#REF!-0.71.670.970.575ERROR:#REF!75ERROR:#REF!ERROR:#REF!ERROR:#REF!-0.71.170.470.5What if $ 50.0078ERROR:#REF!78ERROR:#REF!ERROR:#REF!ERROR:#REF!-0.70.67-0.030.581ERROR:#REF!81ERROR:#REF!ERROR:#REF!ERROR:#REF!-0.70.17-0.530.5BuyERROR:#REF!Sell$ 50.0084ERROR:#REF!84ERROR:#REF!ERROR:#REF!ERROR:#REF!-0.7-0.33-1.03- 0.5Sell$ 50.00BuyERROR:#REF!87ERROR:#REF!87ERROR:#REF!ERROR:#REF!ERROR:#REF!-0.2-0.33-0.53- 0.5ProfitERROR:#REF!ProfitERROR:#REF!90ERROR:#REF!90ERROR:#REF!ERROR:#REF!ERROR:#REF!0.3-0.33-0.03- 0.5x Number of shares in OPERROR:#REF!x Number of shares in OPERROR:#REF!93ERROR:#REF!93ERROR:#REF!ERROR:#REF!ERROR:#REF!0.8-0.330.47- 0.5Total ProfitERROR:#REF!Total ProfitERROR:#REF!96ERROR:#REF!96ERROR:#REF!ERROR:#REF!ERROR:#REF!1.3-0.330.97- 0.5- InvestmentERROR:#REF!- InvestmentERROR:#REF!99ERROR:#REF!99ERROR:#REF!ERROR:#REF!ERROR:#REF!1.8-0.331.47- 0.5102ERROR:#REF!102ERROR:#REF!ERROR:#REF!ERROR:#REF!2.3-0.331.97- 0.5Total Gain/LossERROR:#REF!Total Gain/LossERROR:#REF!105ERROR:#REF!105ERROR:#REF!ERROR:#REF!ERROR:#REF!2.8-0.332.472.5108ERROR:#REF!108ERROR:#REF!ERROR:#REF!ERROR:#REF!ROIERROR:#REF!ROIERROR:#REF!111ERROR:#REF!111ERROR:#REF!ERROR:#REF!ERROR:#REF!114ERROR:#REF!114ERROR:#REF!ERROR:#REF!ERROR:#REF!Total Gain/LossERROR:#REF!117ERROR:#REF!117ERROR:#REF!ERROR:#REF!ERROR:#REF!120ERROR:#REF!120ERROR:#REF!ERROR:#REF!ERROR:#REF!123ERROR:#REF!123ERROR:#REF!ERROR:#REF!ERROR:#REF!What if $ 90.50126ERROR:#REF!126ERROR:#REF!ERROR:#REF!ERROR:#REF!129ERROR:#REF!129ERROR:#REF!ERROR:#REF!ERROR:#REF!BuyERROR:#REF!Sell$ 90.50132ERROR:#REF!132ERROR:#REF!ERROR:#REF!ERROR:#REF!Sell$ 90.50BuyERROR:#REF!135ERROR:#REF!135ERROR:#REF!ERROR:#REF!ERROR:#REF!ProfitERROR:#REF!ProfitERROR:#REF!138ERROR:#REF!138ERROR:#REF!ERROR:#REF!ERROR:#REF!x Number of shares in OPERROR:#REF!x Number of shares in OPERROR:#REF!141ERROR:#REF!141ERROR:#REF!ERROR:#REF!ERROR:#REF!Total ProfitERROR:#REF!Total ProfitERROR:#REF!144ERROR:#REF!144ERROR:#REF!ERROR:#REF!- InvestmentERROR:#REF!- InvestmentERROR:#REF!147ERROR:#REF!147ERROR:#REF!ERROR:#REF!150ERROR:#REF!150ERROR:#REF!ERROR:#REF!Total Gain/LossERROR:#REF!Total Gain/LossERROR:#REF!

ROIERROR:#REF!ROIERROR:#REF!Total Gain/LossERROR:#REF!

What if $ 98.00

BuyERROR:#REF!Sell$ 98.00Sell$ 98.00BuyERROR:#REF!ProfitERROR:#REF!ProfitERROR:#REF!x Number of shares in OPERROR:#REF!x Number of shares in OPERROR:#REF!Total ProfitERROR:#REF!Total ProfitERROR:#REF!- InvestmentERROR:#REF!- InvestmentERROR:#REF!

Total Gain/LossERROR:#REF!Total Gain/LossERROR:#REF!

ROIERROR:#REF!ROIERROR:#REF!Total Gain/LossERROR:#REF!

What if $ 98.50

BuyERROR:#REF!Sell$ 98.50Sell$ 98.50BuyERROR:#REF!ProfitERROR:#REF!ProfitERROR:#REF!x Number of shares in OPERROR:#REF!x Number of shares in OPERROR:#REF!Total ProfitERROR:#REF!Total ProfitERROR:#REF!- InvestmentERROR:#REF!- InvestmentERROR:#REF!

Total Gain/LossERROR:#REF!Total Gain/LossERROR:#REF!