Free Money: Ethical Trading.

Things move quickly in the world of Free Money.  After the first entry in the series the plan was to hold that position until May 1st and then collect all the monies.  However, as you know the price of gold has been hit pretty hard lately and so the market has pretty much given up on these stocks.  With no other tempting opportunities, there was no plan to cash out the position even though the contract values have almost moved to 100% of the closing levels of $0 and $1.

Now, before we go on to the changes made to the portfolio let’s remember that there was no real mention of ethical trading or trading that was going to save the world.  The comfort level on this trade is definitely not at maximum but making it does not affect the event itself; it does not encourage it nor strive to prevent it.

At about 3pm today it was announced that France and Britain are claiming that the Syrian Government had used chemical weapons on the rebels on more than one occasion over the last few months.  We have heard similar things in the past but in this instance France and Britain are claiming that they have eye witness accounts as well as soil samples that have tested positive for traces of chemical weapons.  How can this information be used to grow our current capital?  Perhaps you are thinking oil prices or maybe use the money to buy a single stock in Raytheon or some other weapons manufacturer because Obama will now attack Syria.  Both of these are good guesses but remember right now the money is on a prediction market.  One of the contacts on this market is:

“Syrian Government to deploy chemical weapons in Syrian Civil War before 1 July 2013”

Paying $1 if they use chemical weapons by July 1st or $0 if they do not. The story needs to be reported by three major news outlets to payout. The lowest price available on this stock was $0.06 or an estimated 6% chance of this event occurring. This is where we will try to take advantage of the situation.  Cash was needed and in the hurry to liquidate part of the position a mistake, the first of many in this series, was made.

To free up some cash the first action was to sell the stocks in:

“London Fix AM Gold price to be LESS THAN US$1,570 on 1 May 2013”

With 48 stocks on hand 25 were sold at $0.95 and 23 were sold at $0.937 giving a total cash out of $45.301.  The initial investment on this position was $24.6432.  Total return: 83.8%.  Pretty good for a first round. The mistake was that the short position would have been a better choice for liquidation.  With the current price of gold the stocks were going for about $0.002 and so the amount lost due to an early exit would have been less.  Oh well, still good returns and a lesson learned.

On to our new position. The first stock was selling for $0.06 but, as mentioned, this is a very small market so by the time the newly acquired cash was all spent the average price paid for this stock was $0.1987.  So this is the new position.

Syrian Government to deploy chemical weapons in Syrian Civil War before 1 July 2013

+223 (Long) Avg.Cost: $0.1987.
Total Cost: $44.3101

Gold price to be greater than   or equal to US$1,570 and less than US$1,600 on 1 May 2013

-50 (Short) Avg.Cost:$0.3018.
Total Refundable Cost(to cover largest possible loss): $34.91

With some trading fees the new total (with $0.13 cash) is: NZ$79.3501.  The large number of decimal places is just because some of the contracts are so small that the site uses four decimal spots.

So now you are probably asking why we kept some of the initial portfolio rather than cashing out everything and putting it into the chemical weapon stock.  This was considered but the chemical weapon usage still needs to be verified and so there is the possibility that that stock will get cleaned out if the claim is false or it is after July 1st with it is announced. This series would not be much fun to read if all the money was gone in three trades. So unless gold makes a comeback before May 1st the largest possible overall loss from this position is NZ$10.