CONTENTS

Fund Overview...........................................................................................................2 Executive Summary...................................................................................................3 Commodity Trades.....................................................................................................4 1. Corn Straddle.................................................................................................4 1.1 1.2 1.3 1.4 1.5 1.6 2. 2.1 2.2 2.3 2.4 2.5 3. 3.1 3.2 3.3 3.4 3.5 3.6 4. Investment Thesis.......................................................................................4 Strategy......................................................................................................4 Derivative Instrument Used........................................................................4 Execution....................................................................................................5 Payoff Analysis............................................................................................5 Other Learning Points.................................................................................6 Investment thesis.......................................................................................7 Derivative Instruments Used......................................................................7 Execution....................................................................................................7 Payoff Analysisfor our trade........................................................................8 Other Learning Points.................................................................................8 Investment thesis.......................................................................................9 Strategy......................................................................................................9 Derivative Instruments Used......................................................................9 Execution..................................................................................................10 Payoff Analysis..........................................................................................11 Other Learning Points...............................................................................12

1. Crude Oil.......................................................................................................7

Gold..................................................................................................................9

Equity Trades...........................................................................................................13 Las Vegas Sands Corp.....................................................................................13 4.1 4.2 4.3 4.4 Investment Thesis.....................................................................................13 Strategy....................................................................................................13 News.........................................................................................................13 Payoff Analysis..........................................................................................14

Payoff Analysis

F u n d O Investment v Launch Date e Fund Size r v Total Returns i NAV e w

Objective
16th Feb 2011 SGD 10,000,000 16.19% SGD11,691,053

Our xxx fund invests primarily on the equities and commodities market. With the utilisation of derivative securities, we aim to achieve long-term capital appreciation with moderate volatility and risk.

Fund Summary

Market Overview
Commodities Unpredictable weather, natural disaster and political instability have given rise to supply shocks in the world of commodities. Greater affluency and the surge in demand from China and to a lesser extent, India and the rest of Asia will increase consumption demand. With greater acknowledgment of commodities as an investable asset class, our team is optimistic that this segment of the financial markets will continue to grow. Equities 2 years into the financial crisis, equity markets even though on the route to recovery, are still a far cry from where they were at the peak in the late 2007. Today, with optimistic data (unemployment, consumer confidence) coming out from the USA, fuelled by the momentum of grow in the Chinese and developing world economies, our team believes that there are still a lot of room for the equity markets to run. SALVIN LOOK HERE!

MTD change S&P Goldman Sachs Commodity Index Energy Agriculture Livestock Precious Metals

YTD change

1.82%

8.86%

4.18% -3.74% 2.26% 0.77%

12.16% 3.46% 4.33% 1.43%

Fund Performance Fund Allocation (as at 19th March 2011)

Top 5 Holdings E Apple Inc x

Sector Technolo gy

% 19.2

e Gold Commodi 8.2 c ty u Las Vegas Sands Services 4.4 ti Corp v Dow Jones Index Index 1.6 e This report will focus on how we utilized futures Oil Crude Commodi 0.1 and options trading strategies we have learnt S throughout the course in conjunction with our ty analysis of macro-driven events to invest in the u equities and commodities markets. m We have mandated our trading window to be at 4 weeks; and have set our expected returns m annualized rate of 20%. at an a Our team adopted a market driven investment strategy. Our priorities are to continue to grow our asset under management while seeking to balance between cost reductions and r growth opportunities in these volatile markets. We successfully incorporated the use of y structured derivatives into our trading ideas (straddle for long volatility and butterfly spread
for short volatility etc) and have also utilized the concept of option Greeks to assist in hedging of our open positions. Leveraging on our financial strength and aligning the business to the environment, we managed to obtain a 16.19% return on our portfolio, and its NAV stands at SGD11,691,053 today. We also managed to unwind most of our positions as Cash and Cash Equivalent now represents 65% of our portfolio allocation. The rest are held in stock, future options, futures and options.

C o m m o d it 1. Corn Straddle y T r a d e s

1.1Investment Thesis

Figure 1.1: Graph of Corn Price In light of the highly volatile global economy towards the end of February, we felt it was a right time to diversify our portfolio and venture into the future options market of the agriculture sector. Though we found our choices limited merely to Corn Future Options, we still proceeded and implemented a strategy Source: http://www.traderslog.com/quotes-charts/?sym=C! that could maximise returns in times of great uncertainty. Our preferred options strategy was actualize based on several conflicting findings regarding the outlook of Corn Futures. In India, prices dropped on 25th February following healthy forecasts of supplies from the major producing regions of Bihar and Tamil Nadu, propelling estimates of maize production to 20.03 million tons for 2011, an increase of almost 20% from the 16.72 million tons of 2010. On the same day elsewhere in the United States, Corn prices rose 3.7%, or 25.5 cents to $7.22 a bushel after the U.S Agriculture Department reported huge jumps in export figures which were above analyst expectations. Global supply squeeze due to bad weather conditions in major crop producing regions such as Australia, China and Russia and increase demand from emerging markets. The impact the turmoil in Middle East has on Corn Futures prices is very unpredictable. Firstly, food prices fell when the cost of oil spiked as people cut back on food expenditure in anticipation of spending more on energy. However, an increasing proportion of world corn output is used to manufacture ethanol/bio fuel, thus, if oil and energy prices increase, so would that of bio fuel and corn.

1.1Strategy
Given the various factors exerting opposing effects on the price of Corn Futures, we felt prices would swing either way. Thus we decided to bet on the volatility of the prices and implemented a Straddle. The Straddle strategy involves buying an equal amount of May corn futures call and put options with the same strike price.

1.2Derivative Instrument Used

Corn Call Future Options Corn Put Future Options

Figure 1.2: Timeline for Execution of Corn Trade

1.3Execution
25 February 2011 May Corn Futures Price: $7.22

r order for 1000 May Corn Futures Put Options at $7.25 -Enter order for r expired, NOT Filled] 50 May Corn Futures Call & Put Options at X=$7.25 [Order Not Filled [Order expired, NOT Filled]

-Enter order for 3 May Corn Futures Call & Put Options at X=$7.25 [Order Filled Straddle in action} [Order expired, NOT Filled]

We begin by placing orders for 1,000 call and put options for May Corn Futures with strike price of $7.25. The order expired and thus could not be filled. 28 February 2011 May Corn Futures Price: $7.23 We placed orders for 500 calls and puts, and then 50 of each but they

all expired yet again. Thus, we lowered the orders to match the days volume of 3, and were finally successful in executing the Straddle.

Figure 1.3: Payoff Diagram for Straddle

1.1Payoff Analysis
Our options position gave us the following payoff table. Based on the execution of our trade, we would be able to profit if May Corn Futures prices were either:

1) More than $8.23 OR 2) Less than $6.27

Due to the nature of StockTrak, we are not able to exercise any future options. However, even if we were allowed to do so, our returns from the strategy would not have been impressive. Our bet on volatility was right but the magnitudes of the price movements were not sufficient enough to ensure healthy returns. The May Corn Futures price went as high as $7.42 on 4 th March and as low as $6.08 on the 16th before recovering to $6.84 on March 18, the day our team decided to close our outstanding positions and seize any trading activity. If we had exercised our options during the various extreme scenarios, our profits/losses would have been a loss of 108.15 + 34.94 187.26 = (SGD 44.17) Figure 1.4: ???

1.1Other Learning Points

The biggest take away from the execution of this trade can be attributed to the lost we suffered due to our miscalculation of the price movements we needed to offset the cost of the options. Although, our bet on volatility was right, the required $1 swings on either side of the initial May Corn Futures was beyond realistic expectations. Given we entered into the Straddle at a very volatile time period, we had to pay substantial amount of premiums in order to take on our desired position. However, if we had been more meticulous in our initial estimations, we would have realised that expected price fluctuations could not have covered these premiums.

In addition, we misinterpreted the May Corn Futures and its respective Options contracts in terms of the size stated in StockTrak. Given each May Corn Futures contract represent 5000 bushels and the size of each Option is 50, we thought each option contract should then translate to 5000 x 50 = 250,000 bushels of Corn. However, it took us a while to realise that our initial understanding was not logical given the price we paid for each option and that each Future Options carries the weight of merely 50 Bushel of Corn.

2. Crude Oil
2.1Investment thesis
Figure 2.1: Graph of Crude Oil Price

The decision to gain exposure to LightOn 17th February, in order to more Sweet Crude oil was an opportunistic oneeffectively hedge our futures position, we as we spotted a downward decline indecided to delta hedge our position. We prices after stability in the politicalcalculated that the delta of the put situation in Egypt was achieved. Despiteoptions was approximately near term bearishness, we believe that oil is undervalued due to fundamental 10% demand from India and China we believed that oil prices will continue rise.

2.2Strategy
To gain exposure to the rising trend of oil prices, we decided to buy into Crude Oil Futures. Despite this opportunistic window, we want to avoid catching the falling knife and gaining exposure as the markets tank. As such, we have decided the cover the downside risk with Put Futures Options. Entry: $84 Entry: $84

2.3Derivative Instruments Used

Crude Oil Futures Cure Oil Put Future Options Figure 2.2: Timeline for Execution of Crude Oil Trade

2.4Execution
In terms of execution, the trade was not so smooth.

On 16th February, we managed to successfully gain exposure through 200 April Put Options Futures at X=$84 -Enter order for 200 lots of Crude Oil March Futures. However, [Order NOT Filled] -Unable to enter sell order for 400 April Put Options Futu our corresponding put position was not [Order NOT Filled] filled. On 22nd February, the Crude Oil March Futures position expired. However, we were unable to sell off the options futures position 0.50, and decided to buy into 400 put option. The order was successfully filled.

2.5Payoff Analysisfor our trade

Qty Cost of Execution -10 253% Gains (Commission) -488,494.80 Overall P&L at Maturity 2,212,282.7 0 -488,494.80 1,723,787.9 0

Future s Option

200

400

Figure 2.3: Pay-off from Crude Oil Trade

Overall, our speculative trade with a hedge on downside risk was successful and we managed to net an overall profit from the strategy of $1,723,787. However, we would like to highlight that the profit from the strategy was dampened because we were unable to exit our future option position due to constraints of using Stocktrak.

2.6Other Learning Points

Why not dynamic hedging? For our trade, we decided to use delta hedging to more effectively hedge our downside risk. However, instead of dynamically hedging our position, we chose to use the hedge-and-forget method instead. The reason for this is because dynamic hedging is far too expensive because the need to rebalance the portfolio to maintain delta neutrality becomes prohibitively expensive when taking into account the transaction costs incurred on trade. It is much more feasible for a large portfolio of options, where only one trade is necessary to zero out delta for whole portfolio. Hedging transactions cost are absorbed by the profits on many trades. Furthermore, we feel that this hedge is effective because if crude plunges, the delta of our put option would increase to provide us with higher downside protection than what is required for our futures. On the flipside, if crude rises, the delta of our put option decreases which minimizes the dampening on profits

3. 4. Gold
4.1Investment thesis
Figure 3.1: Graph of Gold Price Metals are considered havens in times of turmoil. With the political situation taking place in Egypt during the trading period, we felt that it was a good time to increase our portfolio exposure by investments in Gold future options. As the price of WTI crude continued to rise with the heightened political situation in Egypt, Gold prices similarly increased at alarming rates. We were keen on taking a long position in the Gold futures options market because we did not see the political situation in Egypt ending anytime soon. Speculation in the market is expected to drive the prices of Gold higher. However, we also acknowledged that Gold prices over the last few months have been relatively lower with its resistance line at 1425. Thus, despite wanting to take a long charts/?sym=GC! Gold position in Source: http://www.traderslog.com/quotes futures, we were also aware of the downside potential associated with it. With a general long position in the Gold futures market, and the expectations of prices exceeding 1435 at least in the month ahead, we decided on a strategy that allowed us to take a heavier weightage on a long position but at the same time, to take safe on the downside risks involved.

4.2Strategy
The strap strategy is almost like a straddle, but it involves us buying a number of at the money puts as well as twice the number of calls of Gold at the same strike price and expiration date. This is because we are expecting more volatility in the near term with Gold prices likely to move upwards instead of downwards.

4.3Derivative Instruments Used

Gold Put Future Options Gold Call Future Options

4.4Execution
2nd March 2011 Current Gold Price: 1437.2 Figure 3.2: Timeline for Execution of Gold Trade

-Enter orderorder AprilApril Gold Futures OptionsOptions $1435 $1435 Enter order for 300 Gold Futures Call Call Options X X = $1435 -Enter for 300 150 Gold Futures Call Call at X = at X = -Enter order for 150 forApril April Gold FuturesOptions at at = $1435 [Order expired, NOT STRAP in [Order [Order expired, Filled] [Order Filled] Filled NOT filled] Action]

Number of Gold April Put Options Purchased : 150 Strike Price: $1435 Contract Size : 100 Price paid per option : $23.60 Exchange Rate: 1.28 Commission: $10

Total costs= 150100$23.601.28+$10=S$453,130.00

We chose a strike price of $1435 because the exercise prices available on Stocktrak only allowed us to work with prices with multiples of 5. Also, on that day, we wanted to purchase 300 Gold Future Call Options for April to structure our strategy, however, our order was not filled. In the subsequent days ahead, we were still unable to fill our order of 300 Gold Future Call Options for April. 9th of March 2011 Trade 1 Number of Gold April Call Options Purchased: 150 Price Paid per option: $14.30 Exchange Rate: 1.28 Strike Price: $1435

Total Costs = 150100$14.301.28+$10=S$274,570 Trade 2 Number of Gold April Call Options Purchased: 150 Price paid per option: $15.30 Strike Price: $1435

Total Costs = 150100$15.301.28+$10=S$293,770 As we had problems filling our orders for our call options, we decided to split the orders and we managed to implement our strap strategy fully. Both trades took place during different times of the day, and hence the difference in the price paid for the call options. We finally managed to execute the STRAP for gold futures on 9 March 2011.

1.1Payoff Analysis
B April Put F uy uture Optiona 1 3 t 45 B April Ca F uy ll uture Optionsa 1 3 t 45 B April Ca F uy ll uture Optionsa 1 3 t 45 T l Cost Involved ota Num of Options P ber rice peroption E xcha e R te C m ion ng a om iss T lC t ota os D te of Purcha e a s 150 23.6 1.28 10 $ (453,130.00) 2/3/2011 150 14.3 1.28 10 $ (274,570.00) 9/3/2011 150 15.3 1.28 10 $ (293,770.00) 9/3/2011 $ (1,021,470.00)

Figure 3.3: Payoff Diagram for Gold Trade

Profitability Gauge

Based on the fluctuations of the Gold April Futures prices from March 9th 2011 onwards, we realised that we would not have been profitable despite the fluctuations in the prices. We took our evaluation on the 13th of March 2011. This is because based we purchased our options at a relatively high cost and the price fluctuations of Gold during the period in which we were holding our long position in April Gold Futures would not be able to satisfy any situation in which we would have been able to profit. Reflected on the website is our current P/L based on the changes in the value of the options in our Long position. On 13th March, the value of our future options on Stocktrak is as follow: Quantity April Gold Call Options April Gold Put Options Net P/L (Local currency) 300 150 Price Paid 14.80 23.6 Last Price 11.90 26.1 P/L (87,000) 37,500 (49,500)

Based on the given information, we realised that for our position on Gold April Futures, we were not able to be profitable in both situations: 1) Exercising of futures for profit gaining 2) Option trading in which we only focused on the value of the options.

1.1Other Learning Points

Our biggest learning point for this particular trade is that for inexperienced traders, it is always important to cover our downside positions. Although we believed that the Gold futures prices will have risen based on the political situation in Egypt and the increasing investment in metals as a safe haven, we were fortunate to cover our downside and to limit our losses to $1,021,470. Should we have purchased call options alone and taken a large long position on gold futures, we would have made much higher losses. Another learning point was that after doing any fundamental and technical analysis, it is important to firstly create a payoff table and then decide to purchase which options based on the prices at that point of time. It was only after we purchased the options that we realised that we would have only been able to profit if prices were either more than $1461.60 or lower than $1381.80 ad this would have been hard to achieve based on the analysis that we made on Gold as an investment. The payoff table would also have allowed us to realise the absolute amount of losses that we would have to bear and this could have better allowed us to plan our asset allocation strategy.

E q u it 2. Las Vegas Sands Corp. y T 2.1Investment Thesis r Integrated resorts developer Las Vegas Sands Corp. (LVS) posted strong earnings results in Singapore with revenue exceeding $1.02 billion since the start of opertations. In the coming a quarter, most of their remaining elements in Marina Bay Sands including the ArtScience Museum and Light and Water show will be launched. Also, with the recently crowned Asia d best MICE Hotel title, we believe that this will drive additional visitation and produce e increased earnings. This is coupled with news that the company sees expansion in Spain. With the global economy picking up from the recession and its exposure to Asia, we believe s that LVS will be a strong buy.
2.2Strategy
Although the stock is listed on the New York Stock Exchange (NYSE), we constructed a hedge by shorting the Dow Jones Industrial Average (DJINDU) index futures as the NYSE index futures are not available. To determine the optimal number of futures contracts to short, we used the formula below: Thus, we shorted 7 futures contracts to reduce market exposure for the LVS position. We note that this hedge is hardly perfect since LVS is not a component of the DJINDU and we are only not hedging a wide portfolio. With the worsening Middle East crisis and volatile commodity markets, we maintain a bearish stand on the equity markets. In view of this, our hedge is in fact a two-pronged strategy to limit our systematic risk while aiming to profit from the retreating index.

2.3Derivative Instruments Used

NYSE Index Futures Las Vegas Sands Put Options

2.4News
Unfortunately, SEC commissioned an investigation into the companys Macau operations over an alledged bribery case. This happened a week after we bought into LVS. The news caused LVS share price to plumment and we made substantial overnight losses of about 8%. Our hedge did not protect us against this unsystematic risk. Following this, we decided to shift our strategy towards buying put options on LVS to limit our downside risk. We still maintained bullish on the stock but are very wary of the

uncertainties in the near term. Using the volatility calculator, we determine the number of put options to buy:

2.5Payoff Analysis

In the end, we bought 19 put options with strike price of US$38 at a price of $4,578.59. This protective put strategy worked and we limited our losses on further falls in LVS prices.

Although we hedged the downside of LVS using put options, we decided not to close our DJINDU futures short positions because of the bearish view on the equity markets after the Middle East crisis worsened.