Angelica Lopez- 400002613

Derivatives

Week 5 Trade- March 9th- March 13th

Portfolio Value: $832,138,483 Return: - 16.79%

Futures & Sector Weighing- Capitalizing on the Bearish Market

The debilitating effects of the coronavirus continues to cripple the stock market. On

Thursday, the three major indexes, Dow, S&P 500 and Nasdaq closed on the red, again. In

fact, this week was even worse than last week as Dow Jones & S&P 500 had their worst day

since the “ Black Monday” crash in 1987. According the news, the Feds plan on injecting

$1.5 Trilling into the market by March 12 and the NY Fed offered $500 billion in a three

month repo operation. Indeed, it is evident that significant market fluctuations engenders

drastic responses by the government.

Moreover, trades conducted this week were primarily transactions in the equity

market and adjustments for sector weighting. I bought equity index futures in E-mini S&P

500, E-mini- Dow, and E-mini Nasdaq. Prior to making these purchases, I learnt that in an

index future contract, the holder agrees to purchase an index at a particular price on a

specified date in the future; If on that future date the price of the index is higher than the

agreed-upon price, the buyer has made a profit. Given that the market has been bearish, I

purchased those equity indexes with an expectation of improved conditions in the future. I

believe the coronavirus scare will eventually evaporate and investors will slowly regain

confidence, thus allowing me to reap profits if indexes increase. I also learnt to appreciate the

contract multiplier (contract size) in purchasing those equity index futures.

 Furthermore, sector weighing adjustments were made by buying ETF’s in two

additional sectors; namely, the Biotech and Bonds. The ongoing competition to introduce a

vaccine for COVID -19 makes the biotech sector a favorable investment. iShareNasdq

Biotechnology ETF has a Beta of 0.92, which means that it would not suffer from the

volatility in the market. Moreover, an ETF in US Treasury Bills were purchased as a safety

net. Ideally, the NASDAQ: TLT has is one of the best performing ETFs in the market,

because its ownership of long-term treasury bonds and it is most sensitive to interest rate

movements. If bonds rates keep falling, then the iShare bond ETF will be doing well.

Overall, I’ve learnt about the value of equity index futures in seeking future profits , and the

value of engaging in sector waiting based on expectations of the market. Indeed, investors

must actively manage their portfolio and capitalize on the bearish markets through future

contracts and sector weight. The most important insight gained this week though, is the value

of forecasting; An investors expectation of the future can significantly affect their trades. We

must be prudent in our projections for future economic activity to ensure that wise and

profitable trades are executed.