Trading Places

Pubblicato il 4 Gennaio 2019 da Veronica Baker

The most valuable commodity I know of…is information.

Gordon Gekko (Michael Douglas) – Wall Street


Yesterday evening I have watched Trading Places for about the fourth time.

And I realize that most of people cannot understand what is really happened in the last scene.

Trading Places : a little explaination

The Dukes’ agent has the fake crop report saying that the weather was bad and the harvest was less than normal.

Trading Places
I realize that most of people cannot understand what is really happened in the last scene…

Therefore, he is expecting high prices.

Valentine and Winthorpe have the real crop report and know that prices will go down when it is revealed.

The agent wants to own as many contracts as possible before the crop report is revealed.
Since (he thinks) once it is, the price will go up and he can sell with an enormous profit.

Trading begins with a price of 102 cents per pound, which translates into $15.300 per contract.
Once everyone sees that the Dukes’ agent is trying to corner the market forcing the price up since more people are buying than selling.

When the market soares, at a moment timed for maximum dramatic impact, Valentine and Winthorpe make their first move.
“Sell [unintelligible] in April at 142”.

Trading places : a typical short selling in future market

Selling contracts they don’t yet hold.
And buying  later at a lower price.

Important to notice they don’t want to hold any contracts at the end of the day.

Now the other agents can buy from Valentine and Winthorpe as fast as they can write the orders.
Simply there are now more sellers than there were before.

And the price is back down to 102 cents per contract, right where it was at the start of trading.

The crop report is revealed and immediately the price starts dropping.
Everyone tries to zero their positions before the bottom drops out or trading ends.

At a moment timed for maximum dramatic impact (about 46 cents), Valentine and Winthorpe start to recover their short positions before the end of the day.

But they don’t buy any from the Dukes’ agent.
They want him to be left holding the bag at the end of trading.

When that time comes, the price is 29 cents per pound.
And Valentine and Winthorpe have delivered on all their short-sold contracts.

Winthorpe says “20.000”.
The total number of contracts they moved.

They sold short at a constant rate from the time the price was 142 until the time the price was 102.
An average price per contract of 122 cents per pound.

They bought at a constant rate from the time the price was 46 cents per pound until the end (29 cents per pound).
Which yields an average price per contract of 38 cents per pound.

Profits : (122 cents/pound – 38 cents/pound) * 15000 pounds/contract * 20000 contracts =  25.200.000.000 $

Since the Dukes’ agent flamed out, he’s holding a bunch of contracts at the end of trading.
There’s a margin call to settle the Dukes’ account.

394.000.000 $ margin call…



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