MGRM and the Stack and Roll Strategy - Finance Assignment Help

Assignment Task :

Question 1: MGRM and the Stack and Roll strategy 
April 23 of 2019 Qantas entered into an agreement to buy 1.2MM barrels of Oil from MGRM for $70 a barrel. They would receive 100,000 barrels of oil on the 21st of every month up to May 21st of 2020. MGRM hedges the exposure by entering front month oil contracts and rolling the exposure the day before expiry.
A. Calculate the dollar total profit/loss for MGRM
B. What was the expected dollar profit/loss for MGRM (meaning no market frictions/ no rollover costs, etc..) 
C. Calculate the total dollar cost of rolling over the contracts (5pts)
D. If the spot cost of buying the oil was zero on May 21st, what would have been the total dollar profit to the strategy 
E. If Qantas had decided not to hedge, how much could they have saved/lost? 
F. Recommend an instrument that could have helped Qantas and explain why you would have used it 
 

Question 2: Nick Leeson and baring bank
You are the head trader at Drexel Burnham Singapore’s office, and you have recently heard of a rumour that a firm has accumulated a huge long position in Nikkei futures. The rumour has it that the position is untenable and likely to blow-up if the market starts to fall.
You decide to buy 1000 straddles on Dec 26th 1994 and delta hedge the position daily.
A. Calculate the value of the February 1995 American straddle. The risk-free rate is
B. What is the profit of the option strategy at expiry?
C. What is the dollar return of the total trade including the hedge.
D. If you were worried about vega hedging the straddle when you sold it, how many options would you need to use if you sold the 1800 put. 
E. How may futures would you use to get you delta back to zero? 
F. What is the dollar return to the delta-vega hedged strategy? 
 

Question 3: LTCM and Index Arbitrage 
One of the trades that LTCM did was index arbitrage, which was similar to the bond spread trades. In this case LTCM examined the return profile of holding SPY vs QQQ. The rule was buying SPY/selling QQQ when the (SPY minus QQQ) prior day return is mean -.5SD(SD=.5 times the daily return standard deviation) below a 12 month rolling return average (standard momentum measure), and buying QQQ/selling SPY when the (SPY minus QQQ) prior day return is above mean+ .5SD the return average.
Start the portfolio with $1mm.
The return each day is the return for going either long/short (SPY minus QQQ) on the given day based on the rule above or the average return of SPY and QQQ if the return is within the mean+- . 5SD bound

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