Ag Econ 162

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Objectives of the Course

The central focus of this course in futures and options trading is to provide agricultural business majors with a basic understanding of basic techniques used in futures and options trading for hedging in agricultural markets. An understanding of the role of the speculator in the futures and options market is gained and basic principles used by speculators in the futures and options market are emphasized. A detailed course objective may be reviewed in an outline of course objectives available for viewing and printing with Microsoft Word. A week-by-week course time line should also be reviewed by downloading the course schedule. In addition, a computerized exercise. in futures trading is an integral part of the course. Instruction in the use of futures continues all semester and additional understanding of how markets respond to changes in economic policies, events, weather and other variables is gained by continued participation in the exercise throughout the the semester.

What is Covered in the Course?

About one-third of the course is spent in developing an understanding of how basic markets function, using the futures market as a case study. Another third of the course is spent in how to use fundamental and technical analysis and relevant economic information to be used to price products in both the futures and cash markets. The last third of the course is spent on developing an understanding of the use of options, and their usefulness as an adjunct to the use of futures in hedging. Financial instrument are also briefly explored. Computerized case studies are used throughout the course.

Understanding Options

About one-third of the course is spent in helping the student attain a basics understanding of how options contracts are used. This segment of the course is primarily taught from the standpoint of option's use as a hedging instrument to supplement the use of futures for hedging. There are several good place to start for self study of options contracts. I like the University of Missouri's and the University of Maryland's basic ag options tutorials, while Money Mag's tutorial for non-ag futures and options offers good sound advice for beginners. There are lots of others. The Chicago Mercantile Exchange has a good basic futures and options "basics" tutorial site. Look for tutorials and discussions at all the major exchanges. If you want to jump off to other exchanges try Chicago Board of Trade or the Kansas City Board of Trade. They have some nice educational materials. Nose around! We will buttress this tutorial approach with problems, case studies, examples and discussion in class. Just added in a Powerpoint format, a new options trading tutorial . The tutorial considers basics of options trading, compares options with futures for hedging purposes and evaluates basics of writing covered and naked puts and calls.

How Much Emphasis on the Use of the Computer?

This course is computer intensive. Computer proficiencies are necessary. The necessary detailed proficiencies expectations are available for viewing and printing. Some of the problems are quite complex but emphasis is placed on the economic meaning of results and "what-if" situations rather than programming. Lack of familiarity with Excel can cause inadvertent damage to a spreadsheet exercise. Emphasis in most assignments is placed on data input and interpretation of changes in key variables rather than spreadsheet construction. Students with computer skills and an interest in Farm Management are welcome to modify templates for their own use in business or other classes

Futures Trading Exercise

Students participate in a realistic, competitive, real world market exercise by trading in futures during the semester. Each participant has a margin account and trading strategies dictate growth or loss in the account. Weekly reports are released by the account brokerage house and are published here. The latest weekly report is published and should be downloaded. This report summarizes all daily trades, summary activities and gains or losses in each participant account by trading account number. The report is in an XLS format.

Exams and Quizzes

One mid-term and one or two announced quizzes are part of the course regimen. Two computer based quizzes and one-midterm will be given during the course of the semester. Approximate release dates and availability are noted below. A previous semester's midterm is provided below as a study guide for the mid-term. Quiz due dates are printed on the quizzes.

Download Quiz1621.doc 10/10 (20 KB)

Download Quiz1622.doc 11/20 (20 KB)

Download Exam162rev.doc for Midterm 10/23 (20.1 KB)

Download Practice Midterm162.doc 10/23 (20.1 KB)

Download Exam1162.doc 10/26 (19.1 KB)

Assignments and Schedule

While the course is listed as a lecture course, in reality, it is a lab-lecture combination. A lab exercise is periodically assigned. The approximate release date for each assignment is listed in the download description. The actual release date for assignments will be announced in class. Due dates for each of the assignments are listed in the problem documentation. Be sure and check the site frequently. This page will be periodically changed to reflect new or changing future assignments.

Downloading Assignments

Documentation, approximate release dates and assignments are listed below. Preceding each is a brief description. Complete description of the assignment is available in the documentation. Best Option: use the "Save this program to disk" option if prompted and save to a course folder you have created on your hard disk rather than opening from the site. This provides a permanent copy and you can then open from your appropriate folder using either Word or Excel. If it opens directly, then you should save to your hard disk using the "File:Save" option from the program menu

Reading price and fundamental information from a DTN terminal.

Download Simpcht.xls 8/30 (94.2 KB)

Locating and retrieving futures, price and Exchange information from the Internet

Download Orderfrm.doc 9/7 (11.8 KB)

Using technical analysis for hedging and trading

Download Techprob.xls N/A in 2001 (26.1 KB)

An introduction to hedging the cost of production (practice set)

Download Probhdg.doc N/A in 2001 (14.8 KB)

Download Catlfeed.doc N/A in 2001 (25.1 KB)

Using economic information and data for short, intermediate and long term planning

Download Waobprob.doc 9/27 (36.3 KB)

Arbitraging markets and using Federal State Market News Service price data to facilitate market choices