• About Us
      Asia’s 1 st LEED Platinum Rated Campus

      Asia’s 1st LEED Platinum Rated Campus

      About Us

      • Chairman's Message
      • Vice Chairman & CEO
      • Dean's Message
      • Governing Council
      • Business Advisory Council
      • Academic Advisory Council
      • Work With Us
      • Mandatory Disclosure
      • Anti-Ragging Notice

      TERM ZERO

      Media

      • News
      • Events
      • In Media
      • Media Kit

      Rankings

      Accreditations

      NIRF

      Campus

      Blog

      Annual Events

      • Convocation
      • TEDxGLIMChennai
      • L'Attitude
      • Digital Symposium
      • Sangamitra
      • Annual Alumni Meet
      • SWIM
      • IEC
      • Human Capital Management
  • Programs
      Transform and Lead

      Transform and Lead

      Full Time Programs

      PGPM

      One Year MBA for professionals with work experience

      Learn More Apply Now

      PGDM

      Two Year MBA for professionals with 0-2 years of work experience

      Learn More Apply Now

      EXECUTIVE EDUCATION

      Partner with us for customized learning solutions for your organisation

      Learn More

      Corporate Programs

      PGXPM

      Executive program for Mid & Senior Level working professionals

      Learn More Apply Now APP. Deadline: 30th August, 2020

      PGPM Flex

      Weekend management program for young working professionals

      Learn More Apply Now APP. Deadline: 30th August, 2020

      MBA in Business Analytics

      Family Enterprises Management

  • Faculty & Research
      Ranked 6th

      Ranked 6 th

      by NIRF ranking in teaching and learning among all B-Schools in the country

      Faculty

      • Full Time Faculty
      • Visiting Faculty
      • Adjunct Faculty

      Research

      • Faculty Editors
      • Papers & Journal Publications
      • Case Studies & Books
      • Conference Proceedings

      Centers of Excellence

      • Centre For Excellence in Retail Management
      • Great Lakes Centre For Management Research
      • Kotler - Srinivasan Centre for Research in Marketing
      • Centre for Excellence in Business Analytics and Business Intelligence
      • CET
      • Union Bank Centre for Banking Excellence

      Conferences

      • NASMEI
      • Financial Conference
  • Recruiters & Companies

      “Great Location for Talent. We are happy to continue visiting and having budding professionals join us and grow their careers.”

      Anil Visal

      Partner - Deloitte India

      Campus Recruitment

      • Recruitment Process
      • PGDM Class Profile 2018-20
      • PGPM Class Profile 2019-20
      • Past Recuiters
      • Student Achievements
      • Recruiters Speak

      Internships

      • Recruitment Process
      • PGDM Class Profile 2019-21
      • Live Projects

      Placement Reports

      • PGPM
      • PGDM
      • Internship Report

      Leadership Series

      • Titans Speak
      • Industry Lecture Series
      • Thought Leader Series

      Talent Listings

  • Alumni

Building Algorithm By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran

June 6, 2016 | Posted by bobbysrinivasan << back to blog

An example of building an algorithm for trading: Gold. Among all the commodities that are traded both Gold and Crude oil fascinated me. So since I trade them I thought it would be interesting to share my knowledge and experience with you. The reasons for selection of these commodities are as follow,

 

  1. Gold and Crude oil are traded both physically and in an exchange. Manipulating their prices is not easy. There is no insider trading at all.
  2. Intervention by the governments in the price discovery process exists; however you only see government buying gold as part of their foreign reserve and oil is often bought and stored for country’s strategic inventory.
  3. There is huge interest in these commodities all over the world namely governments, traders, speculators are all in the game.
  4. If a long term trend is identified a huge fortune can be made from the market price movements. After the Bretton woods agreement failure in 1971 (present Richard Nixon devalued US dollar by 20%) gold price went from $ 35 an ounce to $ 150 an ounce. The author used this opportunity to create wealth for himself.

 

Now let us turn our attention to trading gold. These are the following basic facts,

 

  1. Gold future options are traded regularly while futures are available for several months in a year. Options are available for every month in CME.
  2. The number of trading days in a month is approximately 22 working days.
  3. Selling options require margin. For a serious trader, it is not so important.
  4. Price during the 22 days are affected by the following major factors,
  5. Non-farm payroll: Every month US releases data on job creation. If the number of jobs created is more than expected the price of gold will fall and vice versa. Normally the drop will be 2 to 3% of value.
  6. GDP growth rate: Every 3 months US announces GDP growth, but keep changing their estimates upward or downward. For example, the first quarter 2016 GDP was announced as 0.45%. This is bad news for the dollar and good news for gold.
  • CPI and PPI at this juncture are not of any relevance because inflation has been relatively flat for a very long time.
  1. Consumer confidence: If it is high, it is not good news for gold. If it is low people rush to buy gold.

 

So given the historical data of the last month one has to do some mental arithmetic and decide how the future price of gold will move and possible size of volatility.

 

Action

 

When the GDP was announced it was quite clear that the dollar will weaken and that the gold price is likely to move up. So being used to trading I sold puts at the level. I felt that the price level will not drop in the next 22 days. Similarly I sold the call above 40 to 50 dollars from the spot. The result was

 

Gold floor closing price for option settlement for April was $ 1244

 

I sold a         1200 Put (2 of them)

1210 Put (2 of them)

1230 Call (2) of them

1290 Call (2) of them

 

I received a total premium of $ 6500. The whole idea is to keep both the premium. Last month yielded $ 5360 and the price of gold stayed in the same range.

 

Results: Astonishing results with 20000 to 25000 dollar margin a net return of $ 5000 or more was possible. This is 20% return per month and more than 250% for the whole month.

 

Conclusion:

 

Experience shows how the prices of gold generally move and how rapidly it moves. Even in these 22 days of trading we can find 10 days where no worthwhile data is coming. During such periods the price will remain relatively stagnant and the option premium for the positions will come down. So a trader can buy back his open positions and still make a good profit.

 

So in this case the algorithm is the rule to trade and how to trade to your advantage contrary to opinion that price movements are random one could easily develop an algorithm which if employed will result in a profit.

<< back to blog

Programs

PGPM - One Year MBA for professionals with 2+ years work experience

Learn More >

PGDM - Two Year MBA for graduates with 0-2 years work experience

Learn More >

Events

Union Bank Finance Conference
Dec 17, 2020

Networking with Champions
Nov 08, 2020

Harry Kraemer on Performance with A Purpose
Oct 08, 2020
Read more

Successful Women in Management (SWIM) Lecture Series
July 05, 2020
Read more

The Great Circle Alumni Talk Series
July 04, 2020
Read more

  • About Us
  • Programs
  • Faculty & Research
  • Recruiters & Companies
  • Alumni
  • Blog
  • Contact Us