It is a huge relief that we have finished the mid-term, good luck guys! Enjoy this weekend…

Getting to my point, after having a week rest and reviewing of FRE501’ mid-term, I could clearly understand the arbitrage, hedge, basis, price spread and so on, to some extent, which could give me ideas for improving the strategies of trading game. Based on the knowledge, it seems like that I have been more confident to the game, but indeed it did not go well.

First bid on 25^th October, Tuesday

Long 1 contract for corn and wheat at 647.5 and 635.2 respectively, short 2 contracts for soybeans at 1232

Calculation

The loss from corn is (647.5-637.5)(-1)*50=-515 and wheat is (635.2-619.4)*(-1)*50=     -790. The gain from soybeans is (1210.4-1232)*2*50=2160. So the net balance increases -515-790+2160=855, but from previous week it remains two long contracts which was trying to offset but fail. It is (1225.4-1210.4)*(-2)*50=-1500, therefore the net balance should finally gain -1500+855=-645. The net balance on 26^th would be 21345-645=20700.

Strategies

Chinese demand for corn is far higher than the 182m tons being revealed by official US data, which signaled that the corn price would go up because of huge import demand for corn in China. In the meantime, since the fast moving average is above the slow moving average (from the technical analysis), I predicted the price trend of wheat is upward. As for the soybeans, I wanted to offset the contracts totally. On the other hand, the fast moving average is below the slow moving average thus it should be in bearish
territory.

Second bid on 27^th October, Wednesday

Short contract for corn at 647

Calculation

The profits from corn is (637.2-651.4)*(-1)*50 + (647-651.4)*2*50=270, and from wheat is (619.4-644)*(-1)*50=1230, so the net balance on 27^th will be 1500(1230+270) +20700=22200.

Strategies

Before the bid, I found one piece of information on 26^th, October that is China had released 3.7 million tons of corn from the government reserves into the market. It means that China will reduce the import from US, so I predicted that the corn price
would decrease. However, the price went up even a big jump, which made me a big
loss.  The reason after that I checked is the reduced concern demand became weaken after European leaders agreed on a plan to curb the region’s debt crisis.

This week the lesson from the loss for corn on 27th is that improving the ability of collecting information should be more critical for me. Otherwise the loss like that will still happen. Anyway, Halloween is coming… hope everyone has fun…