Stock Portfolio Paper Example

This report will document the active traded portfolio held from Friday (July 18th, 2014) until Monday (August 11th, 2014). In this portfolio, the two portfolio managers traded call options and put option for the stocks on the S&P 500, as well as futures contracts in many different asset classes (commodities, currencies, indexes and so on). Trades were made at the end of each week and Monday (August 11, 2014), resulting in four trading days. We decided to divide the portfolio of $500,000 into two of $250,000 dollars, one of those is designed to trade on call/put options and the other will trade only futures.

At the beginning of class we created what they felt like was a “winning” passive portfolio. The belief was that with $500,000 invested in our passive portfolio and $500,000 in our active portfolio that we would turn at least a positive profit. With a portfolio beta of 1.004 and a portfolio forward beta of 1.003 we knew that our returns didn’t have as much potential had our beta been higher but believed that we were the superior investors and would prevail. This belief was shattered when trades were closed and we realized we had actually lost money.

Our returns week 1 came out to a total increase of 1.635%. Returns week 2, week 3, and week 4 correspond as follows: -1.320%, -.603%, and -.479%. As you can see in Exhibit 1 week 1 was our only profiting week. Facebook generated the largest returns of $4,351.99. This was an 8.70% increase in total portfolio return. As for our lowest passive portfolio performer, Johnson&Johnson returned a -$1,722.34. This was a -3.44% decrease in total portfolio return. Our total value for our passive portfolio turned out to be a -$545.01. This is a .11% loss! Although not much of a loss, a profit is what everyone wants. So we turned to options and futures to see if we can recapture those gains!

As seen in Exhibit 2, our first day of trading in options we took long call positions in Apple and Tesla. We felt the share price would increase and we could turn a profit. We also felt prices would go down in Wal-Mart and Petr so we took long put positions. The weekly return was a solid profit of $17,400 or 18.89%. Week 2 we had long calls in Chevron and Ford expecting share price to increase. Well share price decreased and declined rather steeply. Our long puts in Google and Best Buy saved us with a $75,200 profit totaling out to 46.82% weekly return.

This brought our portfolio value to $325,200. Week 3 we run into some trouble. Our long call position in Johnson & Johnson actually made us $5,400 this week. Compared to how it did in our passive portfolio we will take it. We also had a long call on McDonalds and long put positions in Yahoo and Exxon, all losing money.

Week 3 weekly return ended up being a loss of $3,800 or -5.32%. This puts our portfolio value at $321,400. As we come down to week 4 of trading we have our eye on Puma Biotech. We took a long call position in PBYI and Goldman Sachs Group and although Goldman Sachs lost us $2,000 our hunch in PBYI payed off with a profit of $15,750. Now our long puts in Best Buy and Chevron didn’t do to good, both having losses. Our weekly return for week 4 finished at a 1.03% return putting us at a total portfolio value of $324,550.

In Exhibit 3 it shows our active portfolio, we also engaged in future commodities, currencies, and indexes. All of which were bought on 10% margin. July 18th, our first active futures trading day, we traded commodities Copper, Gold, and Palladium. Copper and Palladium returned a profit while Gold gave us a loss totaling out to a weekly return of .2463%. Week 2 of futures trading we decided to trade commodities Silver and Natural Gas and to add a currency. We should have just stuck to trading the commodities because they profited while our currency, Japanese Yen, took a loss. Week 2 still gave us a weekly return of 4.0293% putting our portfolio value at $260,423.50. Week 3 we try our luck with commodities, currencies, and an index.

Copper reported a loss as well as the British Pound. DJIA Comp. actually gave us a profit, although it was a small $148. These total out to a -$1,777, a -.6854% weekly return, giving us a portfolio value of $258,636.50. Week 4 we try to use the same strategy as the profiting weeks before, and trade on Natural Gas and DJIA Comp again to see if we can replicate the profit before along with Yen. It turns out that wasn’t a very good strategy. Natural Gas and Yen both report a loss. Total loss for week 4 was $1,048 or a -.2292% weekly return. Portfolio Value at the end of trades, including dividend income was $258,068.50.

In Exhibit 1 our portfolio beta and the forward portfolio betas are listed. Our highest weekly returns were in the option market with record gains of 18.89% week one and 46.824%. When all trading was concluded we found our portfolio turnover rate by dividing the total amount of new securities purchased or sold (500,000) by our total net asset value (582,618.50) to get a portfolio turnover of 16.52%. A higher turnover rate will incur more transaction costs than a fund with a lower rate.

At 16.52% we would hold our stock on average for 6 years and might be considered bearish. We think our strategies worked out seeing as even though we lost $545 in our passive portfolio giving us a final value of $499,455, we made $82,618.50 in our active portfolio. This brought our final value of our active portfolio to $582,618.50. In the end we feel satisfied with our results and are excited to come home with an $82,073.50 total profit!