MAM 5

1
MAM 5 Rosebank Presentation
2
Introduction

• Make a Million 5
• Single Stock Futures (SSFs)
• Trading of SSFs in MAM5
• SSF Trading Strategies
• Other cost-effective trading instruments
• IDXs
• ETFs

3
Previous MAM Winners
Hermann Kostens - 2008
Hendrik v Niekerk - 2007
Willie Koen - 2006
Leon vd Westhuizen - 2005
4
About MAM

• 3 month online trading competition
• 5th year that we will be giving away R1 million
• MAM 1 to 3 share trading competitions
• MAM4 Single Stock Futures (SSFs)
• MAM4 in 2008 - 300 entries
• The best odds of winning R1 million in the
  country

5
MAM Rules

• Attend the workshop (done!)
• Register Deposit R10,000
• Explore www.psgonline.co.za
• Trade SSFs on the Top 40 shares ETFs
• Follow the leaderboard on www.moneyweb.co.za
• Listen to Moneyweb on RSG, SAFM and Lotus
• Sell out to cash by 27 November 2009
• Visit Moneyweb for the results presentation in
  early December 2009

6
Why trade SSFs

• Cost-effective
• Benefits of gearing therefore, requires less
  initial capital investment
• Within 2 months in MAM4 leader R9 000 to R189
  000
• BUT SSFs are also more risky than shares
• Last 2 weeks of MAM4 Lost R160 000
• Can lose the R10,000 initial deposit
• Use the available tools to mitigate risk
• Price watch to monitor prices on your behalf
• Stop-loss facility to close out positions

7
About SSFs cont.

• A Definition SSFs Explained
• SSFs are contracts entered into between 2
  parties, where 1 party commits to buy a set
  quantity of stock and 1 party agrees to sell a
  set quantity of stock at a specified future date.
  
• This creates the right for the buyer to take
  delivery of that stock on the date of the
  contracts expiry, i.e. the buyer doesnt
  purchase the stock but rather a deposit, known
  as the initial margin is made and used as
  security against the right to take delivery of
  the stock at the specified contracts future
  date.
• Most clients do not, however, take delivery of
  SSFs rather clients close out positions every
  quarter or roll positions over to the next expiry
  date.
• A SSF contract is made up of 100 shares of the
  underlying and the margin is geared at around 15
  of the underlying instruments share price.

8
SSFs Summarised

• A futures contract is
• A standardised contract
• That is listed on the South African Futures
  Exchange (SAFEX), a subsidiary of the JSE
• Of a standard quantity (100) of a specific
  underlying asset, usually a listed share
  partially matched orders simply expire!
• That expires on a predetermined future date,
  usually the third Thursday of every March, June,
  September and December
• At a price reflecting the ruling price of the
  underlying asset on the expiry date, including
  all relevant dividends and interest
• You can opt to go long (benefit from rising
  prices) or go short
• You are required to make an initial margin
  deposit to open the position
• Your profits and losses are marked to market daily

9
SSFs In Action

• INVESTOR A (Equity / Share Trader)
• Investor A is confident that Sasol Ltd shares
  will increase in the oncoming months.
• She has R35,000 which she can invest.
• Sasols share price is R350, therefore she buys
  100 shares.
• 3 months later the price has increased by 10 so
  she sells her shares to make a R3,500 profit. Her
  return on her investment is 10.

• INVESTOR B (SSFs Trader)
• Investor B is confident that Sasol Ltd shares
  will increase in the oncoming months.
• Sasols share price is R350, therefore he buys a
  Long Sasol SSF contract.
• The initial margin set by the broker is R6,000
  which is paid by the buyer.
• After 3 months the price has increased by 10
  and the investor closes out his position and
  sells out of the Sasol SSF contract he is
  holding. His profit is R3,500 but his return on
  his investment is 58.

10
Terminology Explained

• Going Long is when an investor buys a SSF
  contract to benefit from an increase in the
  underlying shares price.
• Going short is when an investor sells a SSF
  contract to benefit from a decrease in the
  underlying shares price.
• Closing a position this is when investors
  choose to sell the position if they hold a long
  SSF contract or buy the position if they hold a
  short SSF contract.
• Expiry date the date at which the SSF contract
  is set to expire. SSF contracts expire
  automatically every quarter on the second-last
  Thursday of March, June, September and December
  of every year. Therefore, contracts bought in
  January 2009 will automatically expire in March
  2009. All contracts are automatically rolled over
  to the next valid expiry date unless investors
  specifically arrange otherwise with PSG Online in
  writing.
• Initial margin the deposit made in order to
  secure the SSF contract. The exact amount is
  specified as a cents per share amount and fixed
  by SAFEX, but it usually equates to about 15 of
  the value of the contract.
• Variation margin the daily process through
  which the unrealised profits and losses are
  processed onto the clients cash account. Should
  this account move into a negative balance, the
  client will be required to settle that negative
  balance through either depositing a cash amount
  or closing positions to the value of the
  unrealised loss.
• Rolling a position the quarterly process
  through which a SSF contract is automatically
  closed and then re-opened with the next dated
  expiry date for a SSF contract in the same
  underlying instrument. This is the default option
  for all SSF contracts.
• Underlying instrument SSFs are derivatives
  because they derive their value from the
  underlying instrument. These will be mostly
  shares listed on the JSE and certain Exchange
  Traded Funds (ETFs).

11
How to go long

• A Practical Example
• Assume that Sasol Ltd shares are trading at R275
  and the SSF price is R278.
• You have heard that a hurricane is predicted to
  hit oil rigs in the Gulf of Mexico in the ensuing
  week, which may affect output rates due to the
  damage. You believe that this will cause the
  price of oil to increase as supply decreases. You
  decide to buy a Long SSF and purchase one DEC09
  SOLQ contract which gives you the equivalent
  exposure of 100 Sasol shares.
• The contract value is R27,800 and the initial
  margin is R4,950. This amount will be taken from
  your SSF account and deposited in a trust with
  SAFEX, which earns interest at the specified
  rate. Your exposure is now 1 contract.
• The hurricane hits oil rigs in Mexico and this
  has affected the price of oil causing the share
  price to increase by 20, from R275 to R330. You
  believe that the share price wont increase much
  further and so decide to close out your position
  and sell out the one DEC09 SOLQ contract you are
  holding at R331.
• At this point your initial margin along with the
  difference between the value of the underlying
  shares when you opened and closed the contract is
  refunded which is 100 shares x (R331 R278)
  R5300 which equates to a profit of 107 for an
  initial capital outlay of R4,950.
• The realised profit and initial margin returned
  are available for new positions immediately, even
  though the cash will only be processed onto the
  trading account at the conclusion of the trading
  day.

12
Trading SSFs during MAM5

• Buy-in of R10 000, calculated as follows
• R 9 000 trading funds which can be used as the
  initial margin on your positions (This money or
  the single stock futures it buys belongs to you,
  even after the competition. Therefore all profits
  and losses are for your SSF account)
• R 1 000 variation margin which is held in a JSE
  trustee account and will be refunded at the end
  of the competition
• NO ENTRY FEE opportunity to open a number of
  MAM5 accounts
• Can trade online or through the PSG Online
  Dealing Desk on weekdays from 09h00 to 17h00
• www.psgonline.co.za or 0860 774 774

13
MAM5 Margin Calls

• All realised profits and losses are processed
  onto accounts immediately after trading and
  therefore realised profits and returned initial
  margin will be available for trading immediately.
• Should positions remain open overnight, they will
  have produced either unrealised profits or
  unrealised losses. These are processed by SAFEX
  as cash journals on the SSF account.
• Competitors may not add additional funds to their
  initial portfolio value
• Cannot top-up or pay in margin, therefore if
  the loss on a position is greater than 50 of the
  initial margin required for the position you will
  be required to sell out of that position or cover
  that loss with remaining funds in your MAM5
  account.

14
Margin Calls cont.

• An Example
• If an account has a cash balance of R5,000 and
  total unrealised losses of R7,500 at the close of
  trading, SAFEX will process the loss of R7,500 on
  the account to leave the account with a negative
  cash balance of R2,500.
• All standard SSF account holders will be required
  to pay in that R2,500 as variation margin by
  1600 on the following trading day regardless
  of intraday share movements on that following
  trading day. If an account holder fails to
  deposit the required variation margin, the PSG
  Online dealing desk will close out sufficient
  contracts to cover the unrealised loss.
• If you do add funds to your MAM5 account it will
  automatically be converted into a normal SSF
  trading account. So there is no penalty for
  adding funds just means that your entry is
  removed from the competition and you can continue
  to hold your contract position.

15
Fees Charges

• The following fees are involved with SSF trading
• 0.5 (excl VAT) R60 booking fee
• Brokerage at 0.4 (excl VAT) of the value of the
  transaction
• Market makers commission at 0.1 (excl VAT) of
  the value of the transaction
• Booking fee of R60 per future code in which a new
  position is opened per day therefore you pay
  only for the opening leg of all transactions, and
  only once per day per future code
• Interest payable on the SSF will be determined
  daily by the market maker in relation to the
  ruling SAFEX rates. The final SSF price will
  include this interest.
• Interest will be paid on cash balances in the SSF
  account at the JSE Trustees rate.

16
SSF Pricing

• Part One
• The following variables are used to calculate the
  price of an SSF
• The underlying share price
• Eg R100 in the case of STD BANK (SBK)
• The interest to be paid on the total cost of the
  SSF
• Eg 8 on R10,000 (R100 per share 100 shares per
  contract) for 3 months
• The dividends that are expected to be paid on the
  shares held within the SSF
• Eg R2 per share
• Market makers commission and brokerage
• Eg 0.5 per transaction

17
SSF Pricing cont.

• Part Two An Example

18
SSF Trading
19
SSF Trading
20
SSF Expiry

• SSFs expire every quarter usually on the third
  Thursday of March, June, September and December
  of each year.
• In the absence of any specific instruction to
  this effect, PSG Online will simply roll the SSF
  to the next available SSF expiry date for the
  same underlying instrument.
• The holder of a SSF may take delivery of the
  actual underlying instruments, but this will only
  be the case if the holder of the SSF has arranged
  in writing for PSG Online to take delivery of the
  instruments.
• Roll-over date during MAM5 3rd week of
  September 2009
• Roll-over Cost 0.25

21
Corporate Actions

• Corporate actions will be processed onto SSF
  contracts by the JSE and owners of SSF positions
  will not be prejudiced by movements in the
  underlying instruments.
• Dividends expected during any given quarter are
  priced into SSFs including the expected
  interest to be received on the dividend payment
  and therefore investors do not receive dividends
  as a cash payment even though they do benefit
  from them.
• If the dividend assumptions from the market maker
  turn out to be wrong, a dividend future will be
  traded to reclaim or refund the variance.
• An Example
• if a share trades at R100 and a R5 dividend is
  expected before the next SSF expiry date, the SSF
  price will be R95 because the dividend will be
  paid out and the share price will fall
  commensurately before the SSF expiry date.

22
Trading Strategies

• Hedge your accounts - Open 2 MAM5 accounts and
  go long one contract and go short in same
  contract in different account. Benefit from
  multiple strategies and accounts as there is NO
  ENTRY FEE.
• Hedge your SSF against the industry Go long
  /short in New Gold ETF. Go long/short in ANGSEP09
  contract.
• Time your market entry and exit with technical
  trading.

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Trading Strategies
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Trading Strategies
Long Close (Sell) _at_ 12800c
12800 12500 300c x 2 contracts R600
R600 / R3750 16 in 6-days
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Trading Strategies
1800c
Neckline
RS
Initial Margin R150
LS
Long 20 contracts R3000
Long Open (Buy) _at_ 1100c
Neckline
High _at_ 1240c 140c x 20 2800 / 3000 93
LS
Head
RS
Head
26
Lessons from MAM4

• Top 3 finishing players had never traded SSFs
  before
• Dont hang-on to losing positions
• R3 000 separated 1st 2nd place
• Portfolio values changed dramatically in last 2
  weeks of competition when Leaderboard closed! It
  is really a game that changes all the time
• The MAM4 winner was never in 1st place on the
  Leaderboard until the last week of the
  competition!
• Get your friends and family to join and benefit
  from multiple trading strategies - MAM4 winner
  entered with friend both traded different
  strategies and split winnings

27
FAQ

• Can open up more than one account
• Your money is held in trust with the JSE
• If youre not in the Top 10 you dont have to
  close out your position BUT BE WARNED!
• Can pay cash into the account to cover a margin
  call that turns your account into a normal SSF
  account
• Taxable? Thats up to you

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Important Details

• Register at www.makeamillion.co.za
• Register from 27 July 2009
• Deposit R10,000 with your cash account reference
  number
• Trade from 31 August 2009
• Leaderboard blanks out 13 November 2009
• Close out by 27 November 2009
• Contact dealers 0860 774 774
• Trade online www.psgonline.co.za

29
IDX in Brief

• IDXs are SSFs on foreign shares
• Buy contract on SAFEX but get exposure to
  international shares Vodafone, Nestle, Coca
  Cola
• Allows investors to get exposure to offshore
  shares and currency with local Rands
• Available to all investors (incl Trusts and
  Companies)
• Prices available on exchange phone for better
  rates
• Trade through PSG Online dealing desk

30
ETFs Explained

A Definition Exchange Traded Funds (ETFs) ETFs
are index funds traded on stock exchanges much
like stocks and bonds. This investment vehicle
trades at approximately the same price as the net
asset value of its underlying assets. ETFs have
the valuation feature of mutual funds but can be
traded instantaneously all day long, unlike
mutual funds which are only redeemed at the net
asset value of the funds at the close of the
trading day. In a survey of investment
professionals conducted in March 2008, 67 called
ETFs the most innovative investment vehicle of
the last two decades and 60 reported that ETFs
have fundamentally changed the way they construct
investment portfolios. - Wikipedia
31
ETFs in Brief

ETFs enable investors to gain broad exposure
to Entire stock markets Specific
sectors Different asset classes Investment
themes ETFs are Fast and efficient real time
access to markets Liquid market
maker Convenient single purchase gives exposure
to the whole market or market segment Transparent
Cost-effective lower cost than other forms of
investing Hedging capability can diversify
risks as invest in performance of an Index vs
share
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ETF

• ETF Providers who support Make a Million
• ABSA
• Deutsche
• SATRIX