Your trading is to primarily hedge your risk exposure to the oil price, assume you are a jet fuel oil producer, and you are going to sell 10,000 barrels of jet fuel oil in 3 months. You aim to use Energy future products to hedge your price risk. Record the fuel price when they start to take positions on CME, to: 1) provide background info about/justify how many contracts you go long/short, 2) show whether you succeed in hedging risk.
● You have $100,000 USD cash on hand at the beginning of your trading. You must use at minimum 70% of your account balance to hedge your oil price risk. Meanwhile, you are allowed to have up to 30% of your account balance to speculating/arbitraging, and the speculation/arbitrage products are not limited to Energy futures (e.g., you can even use Crypto futures to earn short-term profit, but also mind the potential loss).
● You can trade anytime after your instructor’s demonstration, till Tuesday, 12nd April 2022. You can trade as many times as you want, as long as you can justify your trading philosophy. You can do some trials at the beginning of the trading period to get familiar with the platform. When you decide to officially start to implement your strategy,
● You can take both long and short positions in the future contracts. Your orders might be rejected by the system because of margin shortage or market close. When your account balance drops to near zero, you are basically out of the game.
● When you finish your last demanded trade, please download your trading history from
the system. It is not necessary to flatten (close out) all your open positions. It is also a
good practice to keep a record on your daily account balance, profit and loss as well
as open positions, to facilitate consolidating your report.
● Based on your trading history, profit/loss from your future account, and the
income/cost from your physical asset, you need to form a report to summarize your
trading exercise.
Note: Since the contracts can’t be bought in fraction, a tiny variation from the specified budget is
acceptable. You can choose to hold some Cash if you believe the investment opportunity is not
good enough, but also need to justify this decision in your report.

Marking Guide
Your report must include the following sections:
1. Trading objectives: (2 marks)
Give an overview of your trading objectives.
2. Summarize your hedging strategy (8 marks)

Provide a summary on how you use Energy future products to hedge your commodity price
risk. The content should include but not limited to:
 Do you think it is necessary to hedge your jet fuel price risk, and what percentage of
your exposure you think you should hedge (e.g., ?% out of the 10,000 barrels)
 Which future product(s) you use to hedge your risk, outline their basic specs?
 What strategy you employed to hedge (e.g., delivery month, contract price, contract
amount, long or short, etc)?
 What is the performance of your hedging by Tuesday, 12nd April 2022? And how the
spot price change for jet fuel oil?
 Are there any differences between jet fuel oil and the underlying assets of your selected
hedging product? And what risk can be generated from these differences?

3. Summarize your speculation trading (5 marks)
Provide a summary on how you use future contracts to speculate/arbitrage during your
trading period. The content should include but not limited to:
 Why you take/not take speculation position?
 How the speculation performed and explain your profit/loss