Admission of Defeat

Regarding my blog post titled "Strategy: Short E-mini S&P 500 Index Futures Contracts", I concede defeat.

Integral Calculus: A problem

A Forecast about PSX-100 Pakistan Stock Exchange 100 Index

Pakistan's PSX-100 (formerly KSE-100) index will fall atleast 50%,  from 42,000 points in November 2016 to 21,000 points in 2 to 3 years time, i.e. 2018-2019. Investors, especially long-term long-only, need exercise great caution and may have to reallocate, shift, rebalance and  in the extreme case altogether exit the market, particularly if they have ridden the rally starting 10,000 points in mid-2010.

A Proposal for Natural Reader for STEM

A PROPOSAL:

As of today: Mars is almost within human reach. Nuclear fusion offers limitless potential if National Ignition Laboratory finds a way around to tapping it. Genetic engineering (or as they now call it: genetic editing) is set to revolutionize so much. There is so much optimism about all the possibilities technology and science affords humans today. But step back and think for a moment. We may not be knowing it but we are doing a great disservice to the cause of science and technology (the so-called STEM) and the unlocking of the next generation’s learning potential. For while students of Arts (including Literature) could read, watch, listen and thus enjoy and assimilate Arts what can the poor students of STEM do to make the study of STEM more immersive, fruitful, enjoyable and most importantly LESS PAINFUL & INTIMIDATING. I have a suggestion that you guys can work on to make the lives of students of STEM a whole lot easier and study of STEM a great deal interesting.

                I propose that you guys work on and develop a Natural Reader for the sciences and math, STEM. This is no insignificant idea, believe me. This product / software could revolutionize learning. It could potentially dwarf Khan Academy (its inspiration) in its impact and reach. Once developed it could be made freely accessible to every person in the world just as the services of Facebook, Google, Twitter, and Khan Academy are. The developer may well become the owner of the idea / software suite.

                The motivation behind the idea is that already billions of dollars have been spent worldwide on STEM education and, honestly, the outcome has not been very encouraging, to put it mildly. Another motivation is to replace / substitute human labor for computer labor to make use of the enormous potential that computers have. Some examples from Math and Chemistry, I hope, will make what I want to say clearer. A basic integral follows.                                  

                The proposed Natural Reader would read the above expression as: integral of x raised to the power n with respect to x equals x raised to the power n plus one divided by n plus one plus a constant. Now an example from Chemistry:

HCl + NaOH ------> NaCl + H₂O

The Natural Reader would read: Hydrochloric Acid reacts with Sodium Hydroxide to give Sodium Chloride and Water (Oxidane).

2H₂ + O₂ ---------> 2H₂O

Two molecules of two hydrogen atoms each react with a molecule of two oxygen atoms to give two molecules of water (oxidane)

Another example from Math: Find the derivative with respect to x of f(x) = x², using the following difference quotient :

Solution: It follows from above:

The Natural Reader would read the above expression as follows: derivative of f with respect to x  equals limit h approaches zero applied to the expression f of (x plus h) minus f of (x) divided by h. Putting in the values we get the following expression.  

The Natural Reader would read thus: Limit h approaches zero applied to the expression x plus h whole squared minus x squared divided by h.

Our Natural Reader would thus read: Limit h approaches zero applied to the expression x squared plus 2xh plus h squared minus x squared whole divided by h; this reduces, after simplification, to: limit h approaches zero applied to the expression 2xh plus h squared divided by h.

And finally it would read: limit h approaches zero applied to 2x plus h which equals 2x, which is the derivative of f with respect to x.

We all know that most Maths, Physics, Chemistry textbooks from big publishers such as Pearson, McGrawHill, Addison Wesley, Wiley  are also published in Adobe PDF (Portable Document Format) format. Now the English part of these math, physics and chemistry text could be read with an existing Reader, but the technical part, examples of which I have given above, not so. Would not it be really nice that a Natural Reader comes to the rescue of the students of STEM, a reader that is equally adept at reading both the English part and, more importantly, the Technical Part. I hope that I adequately communicated to you the basic idea I have about the Natural Reader and I earnestly request you to look into the matter.

Bye,

Babur Khalid.

Strategy: Short E-mini S&P 500 index futures contracts

Warning: 100% Loss if the S&P 500 index moves up to and beyond 2,800 within 3 years (May 22, 2018). A very unlikely scenario, in my opinion.

From the website:

http://www.google.com/finance?q=INDEXSP:.INX&ei=xUVgVajmH8OXUPnogtgE

We can know the past 10 years historical levels of S&P 500 index.

My investment strategy is: Short S&P 500 index futures contracts

Starting time: May 22, 2015

Investment horizon: At least 3 years (May 22, 2018)

Instrument used: E-mini S&P 500 index futures contracts

Number of instruments used: 1 E-mini S&P 500 index futures for USD35,000. 2 E-mini S&P 500 index futures contracts for USD70,000. And so on.

Contract size: $50 x S&P 500 index

Funds required: 18 months salary. In other words, USD35,000/=.

Leverage involved: 1/3^rd (33%) equity and 2/3^rd (67%) debt (leverage offered by futures contract).

Contracts Maturity: 3 months.

Rolling strategy: Roll into a new index futures contract every 3 months.

Short investment initiation: May 22, 2015 at 2,126 S&P 500 index futures contract

Short investment termination:  within 3 years (May 22, 2018) at 1,500 S&P 500 index futures contract

E-mini S&P 500 index futures value: $2,126 x 50 = $106,300 (May 22, 2015)

E-mini S&P 500 index futures value at expected termination:  $1,500 x 50

=$75,000

Expected Total profit: $106,300 - $75,000 = $31,300

Expected Total profit as a percentage: =31,300/35,000= 89.42%

Transaction costs: Negligible for futures contracts.

Things to be watchful of: Contango, Backwardation. But these are of very little importance.

Reasons for shorting S&P 500 index futures contracts:

1.                 The US economy, a huge economy, is not expected to show serious growth. In other words, the growth will be slow.

2.                 The US interest rates (discount rate) has been too low (almost zero) for too long. It is expected that the interest rates will rise.

3.                 Following from the first reason, the overall stock market, and hence S&P 500 index, is not expected to show further significant growth.

4.                 The S&P 500 index is already too high (2,126 on May 22, 2015 close). Hence the index is already highly overvalued and thus offers justification for a shorting the index.

Welcome to S&P 500 index futures investments blog.