FINC6010 Derivative Securities Group Assignment 2025 Semester 1
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FINC6010 Derivative Securities Assignment
2025 S1
Assignment Overview:
CME Group is the world’s leading derivatives marketplace. The group has four exchanges, CME (Chicago
Mercantile Exchange), CBOT (Chicago Board of Trade), NYMEX (New York Mercantile Exchange) and
COMEX (The Commodity Exchange). These four exchanges offer a wide range of trading benchmarks for all
major asset classes. CME Group’s website (https://www.cmegroup.com/) provides comprehensive
information on derivatives trading and can be used as the major information source of this assignment.
Student teams from University of Sydney’s FINC6010 course are going to investigate derivative securities
trading using the trading simulator provided by CME. The simulator can be accessed after registration (free)
and login (see the following link). Initially, each trading team will have $100,000 to trade but you do not need
use all the amount.

Please register your account by clicking on this link:
https://www.cmegroup.com/trading_tools/simulator.html
You can refer to the screenshot below after successfully registering and logging in to your account:


This assignment integrates AI-assisted learning and job market insights to enhance your financial skills and
career readiness. Through the study and analysis of real-life derivative trading, you will develop a deeper
understanding of various derivative instruments and gain hands-on experience in evaluating derivative contracts.
By applying theoretical concepts to real-world scenarios, this assignment will sharpen your analytical abilities,
improve your practical knowledge, and better prepare you for job interviews and careers in the financial industry.

FINC6010 Derivative Securities Group Assignment 2025 Semester 1
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Submission Guidelines
o Deadline: The assignment is due by 12 May 2025 at 23:59.
o Late submission is not accepted. For special consideration request, please contact the student center
for formal approval.
o Submission Method: Submit your report online via Canvas (“Assignments” tab on Canvas).
o File Format: Submit the report as a PDF (.pdf) or Word (.docx) document.
Group Formation:
o You can form a group with students in different tutorial classes.
o Possible student number of your team Î [1, 2, 3, 4, 5, 6].

Format:
o The report should be well-structured with clear headings.
o Please present the report in a Questions/Answers format.
o Please answer the questions listed below in sequence.
o Please use charts, tables, calculations, screenshots, or references (cite sources) for explanation purpose.
o Use APA reference style for all the references.

Page Limit:
o The submitted report (main body) should not be more than 12 pages, including cover page, references,
and appendices.
o There is no font size or line spacing constraints, if others can read your report.
o Please provide the necessary screenshots to show your actual trading practice.
o Please note that marking will be based on your answers provided in the body of the report, appendices is
used as double check the details, rather than answering questions.
o No need to provide executive summary and introduction, etc.
o Cover page is needed for providing the group name, student ID, and student names.
o For each team, only submit one document and once. Please put “(submitter)” after the submitter’s
name.
o An example for cover page:
Group name: Get HD
Group members: Cecilia Tang (submitter), SID 123456;
Allen Buffett, SID 234567;
Alice Wong, SID 345678;
William Specter, SID 456789.
o Make sure your SID is correct in your report. Incorrect SID will significantly delay your mark
release.

FINC6010 Derivative Securities Group Assignment 2025 Semester 1
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Please note that emails or inquiries from group members regarding whether a specific item is included in the
report are highly likely to incur mark deductions on the group report.

For all general and/or academic enquiries, please email:
stephen.fan@sydney.edu.au

FINC6010 Derivative Securities Group Assignment 2025 Semester 1
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Cogniti.AI Instruction Guide

Semester 1, 2025
Cogniti.AI is an AI-powered learning assistant designed to support your understanding of derivative
securities and trading strategies. It encourages critical thinking and problem-solving by guiding you
through theoretical concepts and real-world applications rather than directly providing answers.
For this assignment, Cogniti.AI will help you:
• Understand trading strategies using the CME Trading Simulator.
• Analyze derivative contracts and risk management techniques.
• Evaluate real-world market conditions and financial instruments.
• Refine problem-solving skills through guided questioning.
• Bridge theory and practice for better decision-making.

You can access Cogniti.AI here: FINC6010 - CME Trading Assignment Helper Chat

Please use your University of Sydney student email to register your account. After logging in, you can
refer to the screenshot below for further instructions.



FINC6010 Derivative Securities Group Assignment 2025 Semester 1
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How Does Cogniti.AI Work?
Cogniti.AI operates using the Socratic method—it asks questions to stimulate your critical thinking
and guide you toward finding the right answer independently.
§ What Cogniti.AI Does:
✔ Encourages active learning by asking guiding questions.
✔ Helps you analyse CME trading strategies.
✔ Provides conceptual explanations of financial topics.
✔ Assists with data interpretation and market insights.
✔ Offers constructive feedback on your responses.
§ What Cogniti.AI Does NOT Do:
❌ It does not provide direct answers to assignment questions.
❌ It does not perform calculations for you.
❌ It does not make trading decisions for you.
❌ It does not replace your own research and analysis.

How to Use Cogniti.AI Effectively?

Step 1: Ask Specific and Clear Questions
• Good question: "How does a bear spread work in derivatives trading?"
• Bad question: "What is the answer to Question 4?" (Cogniti.AI will not give direct answers.)
If you need help with your CME Trading Simulator trades, try asking:
• “Which price should I choose if I intend to buy an option? bid or ask?”

Step 2: Validate AI-Generated Strategies

If Cogniti.AI suggests a trading strategy, critically evaluate it:
• Does it align with real-world market trends?
• Are there potential risks or limitations?
• Can you improve or adjust it based on your knowledge?


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Step 3: Apply Insights to Your Assignment

Use Cogniti.AI’s explanations to enhance your reasoning and justifications.
• Cross-check AI guidance with lecture materials, CME market data, and financial models.

Common Mistakes to Avoid:
Do NOT ask for direct answers to assignment questions.
Do NOT copy AI responses verbatim – always analyse and interpret the insights.
Do NOT rely solely on AI – complement it with your own research and trading experience.
Do NOT use AI-generated content without proper review – verify accuracy and logic.




If Cogniti.AI does not resolve your question:

Email Stephen Fan (Head Tutor): stephen.fan@sydney.edu.au
FINC6010 Derivative Securities Group Assignment 2025 Semester 1
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Login and open the CME simulator using your practice account. The questions are as follows:

Question 1 (3 marks)
The S&P 500 Index, a critical benchmark for U.S. large-cap equities, has demonstrated substantial growth over
the past decade. As of January 2025, the index reached 6,040.53, reflecting a 2.7% increase from the previous
month and a 24.66% rise over the past year. This impressive performance has been largely driven by investor
enthusiasm for artificial intelligence and significant gains in major technology stocks. Companies like Nvidia
and Meta have seen substantial stock increases, contributing to the S&P 500's robust performance.
However, the market faces potential volatility due to ongoing geopolitical tensions and economic factors.
Analysts at Stifel anticipate that the S&P 500 may peak in early 2025, followed by a 10-15% decline in the
latter half of the year, influenced by concerns over slowing economic growth and persistent inflation.
1. In your trading simulator, click on “Equity Index”, and these are Equity Index derivatives. Analyze
historical data from Dec 2024 to Feb 2025 on the CME platform and assess potential price movements in
light of geopolitical and market trends. Summarize key insights, including predictions for price volatility
and opportunities for profitable trades. (1 mark)
2. Based on Part 1, ask Cogniti.AI under what circumstance a short position, and a long position should be
used? Then develop and execute trading strategies for the 5-day period on the CME Trading Simulator. In
this context, your task is to trade two June 2025 E-mini S&P 500 futures contracts over a 5-day trading
period, with the objective of generating profits. Please record trades with screenshots. At the end of the
trading period, calculate your total Profit and Loss (P&L) and evaluate your strategy’s effectiveness. Reflect
on how geopolitical events and market volatility influenced your decisions and explain the rationale.
Critically assess the role of Cogniti.AI in shaping your trading approach, highlighting its strengths and
limitations. (2 marks)

Question 2 (3 marks)
In December 2024, the Australian dollar (AUD) experienced a sharp decline, reaching a 13-month low of 63.36
US cents before slightly rebounding to 63.9 US cents. Although the AUD showed some recovery in early
January 2025, as a financial expert, you anticipate continued volatility in the AUD in the near future.
1. Analyze and forecast the price movement and trends of the AUD exchange rate. Conduct independent
research to identify the key drivers of these trends, including geopolitical, economic, and market-related
factors, and discuss the reasons behind your forecast. (1 mark)
2. Assuming you are a U.S.-based exporter to Australia, click on “Foreign Exchange (FX)”, and these are
Foreign Exchange derivatives. Leverage Cogniti.AI to identify the most suitable futures contract position
to hedge against adverse currency fluctuations as of June 2025. Specify and record screenshots of the futures
contract and position (long or short) that you would take to manage your currency risk. Provide a detailed
explanation of how this position would mitigate adverse price movement risks and support your objectives
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as an exporter. Critique the strategy generated by Cogniti.AI. Discuss its reliability, potential limitations,
and alignment with your market analysis and understanding of current conditions. (2 marks)

Question 3 (2 marks)
As of February 15, 2025, Bitcoin (BTC) is trading at $97,525, reflecting recent market volatility following its
all-time high of $103,804 in late 2024. BTC’s price has been influenced by favorable political developments,
including the re-election of President Donald Trump and the appointment of pro-crypto regulators. However,
profit-taking, shifting Federal Reserve policies, and global geopolitical tensions have led to price fluctuations.
Given this backdrop, your colleague Cecilia is managing the April 2025 Bitcoin (BTC/USD) futures contract
(BTCJ5), currently priced at $99,160. Her objective is to execute trades that capitalize on market movements
while effectively managing risk.
In your trading simulator, navigate to "Cryptocurrencies" → "Cryptocurrency Derivatives", and locate the
BTCJ5 futures contract.
1. Cecilia intends to sell the BTCJ5 futures contract if the price falls to or below $98,000. She is considering
using a Market-if-Touched (MIT) order for this purpose. Is an MIT order appropriate for this scenario? If
yes, explain why. If not, recommend a more suitable order type and justify your choice. (1 mark)
2. Place a MKT (market) order in the trading simulator in one of the cryptocurrencies - Bitcoin or Ether and
take a screenshot showing your trade. Explain the potential risk Cecilia is exposed to assuming the order is
pending. Consider potential liquidity risks, price slippage, and extreme market events (e.g., regulatory
changes, sudden market shocks) that could affect the overall trade performance. Explain with examples. (1
mark)

Question 4 (3 marks)
As a financial expert, you are tasked with constructing and evaluating a bear spread using put options on the
Silver option contracts. You will leverage Cogniti.AI for both theoretical understanding and real-world trading
insights.
1. Ask Cogniti.AI “What is a bear spread?” Summarize Cogniti.AI’s response, focusing on the definition,
construction, and purpose of a bear spread. Include the advantages and risks of using this strategy. (1 mark)
2. In your trading simulator, navigate to "Metals" and find the option contracts for Silver. Use options with
May, June, or July 2025 maturities. Select two put options to construct a bear spread, ensuring one is an in-
the-money put, and the other is an out-of-the-money put. Record the current underlying asset price. Show
all the screenshots of the underlying asset price and your trades. Calculate the total cost of entering the
spread. Construct a profit table and a payoff table showing the potential outcomes at various prices of the
underlying asset at expiration. (2 marks)
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Question 5 (4 marks)
You are tasked with managing risk in the foreign exchange markets using futures contracts. Navigate to the
Foreign Exchange Market section on the CME Group trading simulator and focus on FX derivatives. Select
futures contracts for the Swiss Franc (CHF), Euro FX (EUR), and Mexican Peso (MXN), all with June 2025
maturity, and perform the following advanced tasks:
1. Present your comparison in a single, well-constructed chart that clearly visualizes the price movements of
all three currencies. Select a 3-month time window for your analysis. Evaluate the correlations between the
price movements of the three currencies during this period. (1 mark)
2. Summarize and input your findings in the CognitiAI. Identify which currency poses the highest risk to the
portfolio. Ask CognitiAI to recommend an appropriate hedging strategy using futures contracts, specifying
the position (long/short) and contract details. Execute the trade and provide screenshots. (1 marks)
3. Execute a contrarian trading strategy against the AI-recommended approach. For example, if AI suggests a
long position on a currency, you must go short. Place the required orders in the trading simulator and take
screenshots. Compare the trading results of your contrarian strategy vs. AI-driven strategy, evaluating which
approach performed better by analyzing returns, market conditions, price movements, and risk exposure.
(2 marks)


Question 6 (3 marks)
Suppose you work for an agriculture company that sells corn to a food supplier at the end of June 2025. You
anticipate that corn prices will increase, but not significantly, by June and July 2025. To manage price risk, you
decide to design an options strategy on the CME platform that limits downside risk while allowing you to benefit
from potential price increases. In your trading simulator, click on “Agriculture”, and these are Agriculture
derivatives. Using corn call options to perform the following tasks:
1. Identify an appropriate options trading strategy using corn call options (either long/short). Discuss how this
strategy limits downside risk while enabling you to benefit from price increases. Record or provide
screenshots of the strike prices, option premium, and the net cost of implementing your strategy. (1 mark)
2. Create a payoff diagram that visualizes the profit and payoff of the spread across the range of corn prices at
expiration. Clearly label key points, including breakeven prices and maximum profit/loss levels. (1 mark)
3. Construct a profit and payoff table showing outcomes for the strategy at various corn prices at expiration.
(1 mark)




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Question 7 (4 marks)
In the end of 2024 and early period of 2025, escalating geopolitical tensions in the Middle East have significantly
impacted global financial markets. These developments have heightened investor anxiety, leading to increased
demand for safe-haven assets like gold. Consequently, gold prices have surged, with spot gold rising 1.3% to
$2,693.27 per ounce and gold futures climbing 1.3% to $2,721.30 per ounce. Amid this backdrop, the Federal
Reserve's monetary policy has also played a crucial role. Speculations about potential interest rate cuts have
further bolstered gold's appeal, as lower rates reduce the opportunity cost of holding non-yielding assets like
gold. Analysts suggest that if the Fed signals multiple rate cuts in 2025, it could reignite bullish momentum for
gold.
While gold prices have surged due to geopolitical tensions and central bank demand, future movements remain
uncertain. If geopolitical tensions persist or intensify, gold prices could continue to climb as investors seek safe-
haven assets. However, if geopolitical risks ease, investor demand for gold could diminish, leading to a sell-off.
Additionally, a stronger than expected U.S. economic recovery or higher interest rates from the Federal Reserve
could strengthen the U.S. dollar, reducing gold's appeal. Rising bond yields would further increase the
opportunity cost of holding non-yielding gold, exerting downward pressure on prices. Moreover, if central banks,
particularly in emerging markets, slow their gold purchases or liquidate reserves to stabilize domestic currencies,
this could significantly impact gold demand. Analysts caution that a break below $3,200 per ounce could trigger
technical selling, while sustained geopolitical risks could push prices higher toward $3,500 or beyond.
1. Based on the scenario above and the recent market dynamics, you have a neutral outlook on the market.
You anticipate that gold could sustain its record performance into June 2025, with prices ranging between
$3,050 and $4,150 per ounce. In your trading simulator, navigate to "Metals" and find the June 2025
maturity option contracts for gold. Design an options trading strategy using call options to generate a profit
if the gold price stays within this specified range, while limiting losses if the price moves significantly
outside of it. Clearly identify the underlying asset, the strike prices, the expiration date, and the opening and
closing transaction times for each call option contract. Provide screenshots of all trading activities to support
your analysis. (2 marks)
2. Based on (1), specify the conditions under which this strategy yields a profit, explaining the underlying
factors and market dynamics that contribute to these outcomes. Calculate the breakeven points for the
strategy and include them in your analysis. Evaluate whether the breakeven points and the Profit and/or
Loss (P&L) at maturity from your calculations align with the CME P&L. If there are any discrepancies,
discuss them in detail and provide a clear explanation of why these differences may occur. (2 marks)





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Question 8 (3 marks)
1. Use the same scenario as in Question 7. In your trading simulator, navigate to "Metals". Ask Cogniti.AI to
construct a straddle spread using put options on gold futures (GCQ5). Record and provide screenshots of
the AI’s recommended strike prices, corresponding premiums, and the net cost for the spread. Then,
construct a profit and payoff table based on the AI-generated strategy, showing outcomes at various gold
prices at expiration. (2 marks)
2. Discuss the pros and cons of the straddle spread created by Cogniti.AI, highlighting its strengths as well as
potential drawbacks. Finally, if you were the investor, would you choose to implement this strategy or not?
Provide a clear and well-reasoned explanation, addressing whether the strategy aligns with your
expectations for the gold market and your personal risk tolerance. (1 mark)






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