FAQ
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SSFs and warrants derive their value from an underlying instrument, such as a share or index. Both SSFs and warrants are geared products. This means that, when a share increases in price by 1%, the SSF or warrant could move by 10%, depending on the gearing. With warrants, you make capital growth only when you sell the warrant, if it’s in the profit. With an SSF, you receive either profit or loss daily, depending on the underlying share’s performance each day.

When trading warrants, you pay the premium (price of the warrant) up front and then have the right, but not the obligation, to exercise the warrant until expiry. When trading in futures, you put up a margin amount.

SSFs are leveraged investments, which mean they provide an exposure greater than your initial investment to both increases and decreases in the underlying share prices. That’s what we call gearing. It is important that investors understand that this leverage works both ways. You may lose your entire investment and more!

When buying the actual stock, the buyer has to pay the seller the full value. When buying a future, no money changes hands between buyer and seller. Instead, only an initial margin deposit is required as security for the market (priced to reflect the volatility of the underlying stock). For example: Share X is currently priced at R500; the June future is priced at R520. A buyer of the physical stock would need to pay the full R500 to the seller. However, in order to buy the future, roughly R52 must be paid as an initial margin. Should the stock rise to R530 and the future to R550, the effective returns on the stock and the futures are 6% (R30/R500) and 58% (R30/R52) respectively.

When you buy an SSF in the game, the initial margin is set at 30%, so gearing is 3.33 times. This means that a 1% move in a share will be a 3.33% move in the SSF.

With the warrants, the upfront cost varies from share to share and is around 3-15% for Barrier/Wave warrants (code TOP).

These are the highest geared products in the game, ranging anything from 1.1 to 10 times geared.

Certain warrants give you more gearing exposure. Warrants are traded less than futures, so they are often harder to exit from because of their lower liquidity. This means you might not be able to realise your profit, as it could fall back without you being able to exit your position. In addition, the payoff from a warrant is non-linear, but the payoff from an SSF is linear (With an SSF, your payoff is directly proportional to the change in the underlying share price).

Wave and knockout warrants follow an index and work differently than normal vanilla warrants i.e. equity warrants. Two issuers in the market provide these products: Standard Bank and Deutsche Bank.

You can identify a Standard Bank Knockout! Warrant thus: TOPSK (Then a letter of the alphabet from A to O for call and from P to Z for put) e.g. TOPSKA.

You can identify a Deutsche Bank warrant thus: TOPDW (Then a letter of the alphabet from A to O for call and from P to Z for put) eg TOPDWA.

These warrants have a knockout level. Should the indices reach that level, you are “knocked out” of your position and you lose everything you put into the trade.

The closer these warrants get to the knock-out level, the higher geared they become and the bigger the risk in trading them.

You can go long or short with them. If you buy a long contract, you are not expecting the contract to go below the strike level. If it does, you lose everything. If it goes up, you should be making money.

If you buy a short contract, it implies that you do not expect the contract to go above the strike level. If it does, you lose everything. If it goes down, you should be making money.

You can buy any of the following to gain exposure to indices:
Exchange-traded funds (ETFs)
Barrier warrants
Wave warrants and knockout warrants.

All warrants should have the letters TOP in the code name.

Knockout or wave warrants. (See “What are wave or knockout warrants?” above.)

All JSE equity derivatives have close-out dates on which the contract expires. These dates happen quarterly at 12:00 on the third Thursday of March, June, September and December. In the Investment Challenge game, your position is closed two days before the third Thursday of June and September.

Please note, no positions will be closed in March, as you will be not be able to buy March contracts.

Rolling over is the process whereby a holder replaces a soon-to-be-expiring SSF with a new SSF that has a later expiry date. The holder closes out the position in the nearer-dated SSF and purchases a longer-dated position on the same underlying instrument, thus keeping the same exposure without having to exercise the contract.

However, rollovers are not allowed in the Investment Challenge. Your position is closed two days before the third Thursday of June and September. So, if you want to continue to own a future that is going to expire, you have to repurchase the next expiring contract. For instance, if you hold an AGL Jun 16 contract that is about to expire, you would buy the AGL Sep 16 contract.

The only difference is that the further-dated contract price will be slightly price higher because of the interest payable, but this difference is extremely slight. Otherwise it follows the underlying stock, just as the earlier-dated contract does.

Close-out in the competition happens two days before the normal futures close-out (on the third Thursday of June and September). There are no rollover options with the SSF contracts. All contracts will be cash-settled two days before the future close-out.

For instance: If you own an AGL contract at the close of Tuesday in the week of the third Thursday of June, your position will be closed out. You can then buy the September contract on the Wednesday, to keep holding AGL. You could sell your contract at any time before the close-out and buy the September contract. In March, you will always have the option of buying either the June or the September contract, and when the June contract expires you will have the option of buying the September or December contract. If you wish to buy and hold for a longer period, consider the further expiring contract.

Single-stock future (SSF) prices are based on the Investment Challenge Market Making Engine, which takes into account the underlying share price, interest and a commission.

SSF price = share price x (1 + % commission) x (1 + (% interest * days to expiry / 365))
% commission = 0.3%
% interest = 0.25%

Initial margin = (number of contracts x 100 x price per single-stock future) x 30%
Click on “Trade” at the top of the page bar.
Click on “Trade or Quote“
Click on “Show All” for shares/warrants/single-stock futures
When you trade equity derivatives, there is a risk associated to the underling share paying out a dividend. An N (neutral) contract adds in a dividend amount that neutralises the dividend risk in its SSF price formula. A Q contract is the contract used in the game. It does not include dividend protection in the SSF price formula, but the dividend will be paid out if you hold the SSF on the last date to trade (LDT).

A margin call is a demand by a broker that an investor deposit further cash to cover losses on an SSF position.

In the Investment Challenge, you do not have the option to add cash as you only have the R1 million amount and cannot add to that. Forced sales will be used, should you not have a sufficient cash balance.  

As the rule states:
In the event your SSF account goes into a loss where your loss is greater than your cash balance at the close of the day, your affected SSF positions will be sold from worst to best performer, based on the overall percentage move. Should there still be a shortfall, the system will automatically start closing out shares/warrants, in the order of worst to best performer based on the overall percentage move, until the required loss amount is recovered. There will be no intraday close out if your account goes negative during the day. It will be based solely on the closing prices.

It is either because:
The share/warrant is delisted and a forced sale occurs selling your shares or warrants or
Your SSF is sold two days before the 3rd Thursday of June or September; or
Your account went into a loss because you did not have a sufficient cash balance left, so your SSFs were sold from worst to best performing. If that did not cover the loss, shares or warrants will be sold, also from worst to best performing. (Rule 10).

The initial margin is a deposit kept for each SSF contract bought.

The holder does not have to pay for the full value of the exposure that the SSF affords. However, the JSE insists that both buyer and seller are always able to meet their obligations in terms of the SSF contract. The initial margin is the money deposited against this possibility. The only thing you actually put down is the deposit; you don’t actually buy the SSF.

Initial margin = (number of contracts x 100 x price per single stock future) x 30%

Initial margin is charged based on the previous day’s close.

For initial margin on existing positions, should you transact or should there be a 10% move in the closing price compared with when you entered into the position, this will result in an increase or decrease in initial margin.

Please note, if you buy/sell an extra contract on an existing position, your entire initial margin is revaluated on the closing price when you changed the number of contracts you own.
Total exposure is the amount you are actually risking in the market. You can place a maximum of 10% of your portfolio value in an SSF.

For instance, you could have R1 000 000 in your account and take 10%, which is R100 000, and buy a SSF. Because this is just a deposit towards the SSF position, you are actually exposed to a bigger value. In the Investment Challenge game, that amount is 30%, so you are actually been exposed to R333 333 when putting down R100 000.

Total exposure = 100 x number of contracts x price of SSF.
No more than 20% of the portfolio value may be held in any one share or warrant and no more than 10% of the portfolio value can be in any one SSF.

The rule states: For initial margin on existing positions, should you transact or should there be a 10% move in the closing price compared with when you entered into the position, this will result in an increase or decrease in initial margin.

If you buy/sell an extra contract on an existing position, your entire initial margin is revaluated on the closing price when you changed the number of contracts you owned.
The price movement of the SSF is based on the price movement of the underlying share. As the share price goes up and down, so too does the SSF price. Unlike shares, profits and losses on SSFs are realised and settled daily.

A long position exists when a trader buys and holds any security or derivative in the belief that it will increase in value. A long SSF position implies that the holder expects the price of the underlying share to increase.
If you believe the price of an underlying share is likely to fall, you might sell stock that you do not own by borrowing shares from a broker, in anticipation of buying them back at a lower price and recognising the difference as a profit. This is called going short.
You can buy put warrants or sell SSFs short. To identify put warrants, look for a letter from P to Z at the end of the name of the warrant. For SSFs, select the instrument and then click “Place sell order”.

Warrants:

AGLSBA (last letter A-O = calls)

AGLSBP (last letter P-Z = puts)
You will receive dividends should you be holding a SSF future on the last day to trade (LDT) of the underlying share, as long as the dividend was declared within the competition dates as per the rules.
You will receive no dividends paid on the underlying shares. However, the dividend stream is priced into the warrants, so that warrant holders aren’t prejudiced in holding warrants over ex-dividend dates.
A long position is closed out if the holding is sold; a short position is closed out if the holding is bought. The effect of a close-out is that there is no exposure to the underlying share.
The game uses Q contract SSFs, which means you are not protected from the dividend move, but the dividend is being paid out to you.
At the end of each trading day, the JSE determines the profit or loss on each position, based on the mark-to-market (closing) price of the current day less the mark-to-market price of the previous business day. This profit or loss is referred to as the variation margin and is settled the next business day. This means that holders receive realised profits and pay realised losses on each position every day.

For instance: An initial margin of R2 100 was deposited when purchasing one AGLQ Dec-06 SSF contract at R150. The SSF price rises to R153. The movement is favourable, and (R153 - R150) x 100 = R300 is received in the trading account as variation margin overnight. The SSF price then drops to R147. The movement is now unfavourable, and a loss of (R153 - R147) x 100 = R600 is withdrawn from the trading account overnight. In other words, money flows into and out of the trading account as the price of the SSF position moves up and down.

Unlike the case with shares, where your profit or loss is only realised once you sell the company, JSE equity derivatives pay the profit or loss daily.
To buy shares, you pay the full amount (share price x number of shares). To buy SSFs, you pay a deposit to have exposure to the profit and loss of that SSF. With shares, you only make profit or loss when you sell them. With SSFs, you make profit or loss daily, depending on the direction in which the underlying share moved and on whether you were long or short.
Teams will only be permitted to purchase or sell securities equivalent to 50% (fifty per cent) of the actual number of securities traded on the JSE during any Trading Day. Any orders that exceed this limitation will be only partially filled. If no securities are traded on that trading day, the order will be automatically rejected. Trades not executed for any reason at the end of the day for which the trade was requested, will be cancelled.
Virtual brokerage fees of 1% (one percent) of the value of securities traded in the virtual portfolio will be levied. There is a minimum virtual brokerage charge of R75 (seventy-five rand) per trade.
SSFs expire each quarter on the third Thursday of March, June, September and December. Only June, September and December contracts are made available for the game.

For instance: in March, you will always have the option of buying either the June or the September contract, and when the June contract expires you will have the option of buying the September or December contract. If you wish to buy and hold for a longer period, consider the further expiring contract.
Here is a tip by Simon Brown from www.JustOneLap.com on his selection criteria:

- More than 90 days till expiry
- Strike price within 15% of current underlying share price
- Warrant price greater than 20c.
- Click “Trade” at the top of the page bar.
- Click “Trade or Quote”.
- Type the name of the company you want to buy in the box (under “Search”) and select if you want to buy a Shares/Warrants/SSFs.
- Click “Quote” to get the current price.
- Please note, the price of the Shares/Warrants/SSF is quoted in cents.
- Please note, you will get the closing price on the day you placed the order and not the current price you are being quoted.
- Click the “Trade” button to place your order and type in the number of Shares/Warrants/SSFs you would like to buy.
- Tip: Don’t just guess; work it out. How much money do you want to spend? Take the amount and divide it by the share price in rands to get the number of shares to buy.
- You will see a screen with all the costs displayed and can click “Confirm this order”.
- Your screen will display “Order Placed”, which is confirmation that your order has gone through.
- Click “Trade” at the top of the page bar.
- Click “Trade or Quote”.
- Type in the share code or name of the company you own.
- Click “Trade”.
- The screen will display the “Max you own to sell”.
- Enter the number of shares you want to sell.
- Click “Place Sell Order”.
Check your available balance in the top right hand corner. Depending on which game you playing, you will subtract

- R400 000 from the available balance if you are playing the Income Game
- R250 000 from the available balance if you are playing the Equity Game
- R0 from the available balance if you are playing the Speculator Game

The result will be the amount you can spend. However, you can’t spend more than 10% of your portfolio value on any one company if you are playing the Equity or the Speculator Game. For the Income Game, you don’t have a restriction as to how much you can spend on one company.

Take the amount you want to spend on a company and divide by the share price in rands. (Always remember to convert the share price in cents to rands for instance 35940c = R359.40).
An account may be suspended if the JSE has not received the proof of payment by email or the team has not paid the entry fee of R150.00 within 30 (thirty) days of registering. To be reinstated, your team should send proof of payment to university@jse.co.za.
Unfortunately, the JSE does not currently offer charts, but one of these websites may have the charts you are looking for:
- www.sharenet.co.za
- www.moneyweb.co.za
- www.finweek.co.za
Trades placed before market close (17:00) will be completed at the closing price on the day that they are placed. Trades placed after market close will be completed at the closing price on the following trading day.
The highest growth percentage wins the competition.
If a distribution of dividends takes place after the closing date, that distribution will not be credited to the portfolio. In addition, if the declaration of the dividend falls outside the Challenge start date, that dividend will not be paid. If teams buy or sell shares the LDT, dividends will not be credited to the account. To receive dividends, your purchase must take place the day before the LDT.

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