Paper , Order, or Assignment Requirements

You are just starting your journey in the study of futures, forwards and other derivatives. Forwards and futures contracts are sold on a variety of commodities and other assets. For some examples of commodities that are traded (and you would be able to buy futures or forward contracts), review this scene https://www.youtube.com/watch?v=7EjdC0pjo1A&feature=youtu.be , (00:01:52) from Trading Places starring Eddie Murphy.

News (information) can impact the decisions a hedger, speculator, or arbitrageur may decide to make. Some news may result in lower prices and some in higher prices. The market participants digest the news, make their decisions and take positions in the market which ultimately determines the price. Obviously, the news should be obtained legally and if someone uses insider trading or obtains information illegally there should be consequences. Those with information can obviously take advantage of the information and make large sums of money at the expense of others.

This video clip https://www.popmodal.com/video/1277/Trading-Places-Final-Exchange-Scene-amp-Explanation, (00:07:11) from Trading Places demonstrates what could happen if one group the (Duke Brothers) had the wrong report and Lewis and Billy Ray (who had the correct report) were able to exploit the information. Review the explanation of the scene on the web page. Lewis and Billy Ray sold at 142 (went short) and were able to cover their short at lower prices (as low as 29). The Dukes had been buying at higher prices throughout the day (or at least until the actual OJ report was released) and were then crushed and received a large margin call at the end of the day. The scene also provides a glimpse of how the open-outcry system worked. (Computers have replaced the open outcry system.)

For your discussion, post a current event from the past week, preferably on the same day it was released. The article should focus on what you believe would influence the price of a commodity. Post the article or a link to the article. Then discuss what you think the news would do to the price. (Would price go up or would price go down). If we are long in that commodity, what strategy could you implement to take advantage of the information using forwards, futures, or options?