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The Trading PItt

The Trading PItt. September 27 th , 2010. Topics. Short Positions Hedging Equities Options Futures FX & Over the Counter Support and Resistance Questions. Getting Short . Selling in the hope of a declining price

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The Trading PItt

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  1. The Trading PItt September 27th, 2010

  2. Topics • Short Positions • Hedging • Equities • Options • Futures • FX & Over the Counter • Support and Resistance • Questions

  3. Getting Short • Selling in the hope of a declining price • Stock – Actually borrowing shares from someone and then selling those on the open market. • This still entitles the original owner all dividends and the rights of stock ownership. You have to pay them the dividends and comes out of your Profit and Loss (PnL) • Covering your position – Buying stock in the market and then delivering those back to the original owner. • Sell High, Buy Low

  4. Options • The most basic derivative. • A standard option contract enables you to control 100 shares and expires at a set date. • Long Options – Gives you the right to buy or sell 100 shares but not the obligation. • Calls – Buy to get exposure to long stock • Puts – Buy to get exposure to short stock • Unlimited Upside, Limited Downside • RIMM Nov 10 Calls at 50.00 cost 2.38 • Breakeven is when the 52.38 • Can be traded, do not need to be held to expiration.

  5. Option Example Breakeven – 52.38 Target $55.00 Profit = $2.62 Profit Percentage = 2.62/2.38 = 110% Total Upfront 238.00 Commission = $1 Time left: 7 weeks

  6. Futures • The primary way to access the commodity markets. • Gold, Oil, Treasuries, Wheat, Interest Rates, currencies, etc. • Check out www.cmegroup.com for more information on the different types of contracts. • Generally considered the most volatile • A futures contract is an agreement to buy or sell a set amount of a given commodity at a given date. • Not at a given price like options. Your PnL is determined just like stocks with your entry and exit prices. • Interested in Futures, check out the Series 3

  7. FX “Foreign Exchange” • Buying one currency and simultaneously selling another “Being Short” • No different than buying stock – Going Long RIMM Stock and Short Cash • You think in the future that RIMM stock will be worth more than it is today. • Biggest market in the world, most fragmented. • The EUR/USD at 1.34 translates to it cost $1.34 to purchase one Euro.

  8. FX Example Buy 10,000 EUR/USD at 1.33 = Selling $13,300 and buying 10,000 Euros Sell 10,000 EUR/USD at 1.35 = Selling 10,000 Euros for 13,500 Net $200 profit

  9. Hedging • Traditional finance teaches that by expecting a certain amount of reward you inherit a certain level of risk. • This is because they assume asset prices are random. • So, the largest institutions want to hedge out as much risk as possible. • Large corporations often short futures because they want to focus on their production. • If selling price moves in up they still don’t benefit because they are short futures, but still hold the product.

  10. Support And Resistance • The concept of price memory and that market participants want to break even. • A position trades against you and goes back to its initial price. • Buyers sell out their longs and shorts covers • Introduces the concept of levels and inflection points where buyers and sellers meet • Volume is important • Market Delta and Profile Charts

  11. Support Becomes Resistance

  12. Resistance and Support Zones

  13. Questions? • Send us an email at thetradinpitt@gmail.com or me at steve.mcmannis@gmail.com • Check out the website http://www.pitt.edu/~sorc/trade/ • Check out Wall Street Warriors: http://www.mojohd.com/mojoseries/wallstreetwarriors/

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