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Booth students take top honors in hedge fund competition

Apr 13, 2012

Team’s winning strategy secured a 23.8 percent return in final round

Imagine having one month to turn a profit by trading two of the most volatile commodities in the world: crude oil and gold.

A team of four Chicago Booth students accomplished that goal—racking up a theoretical, compound profit of nearly 53 percent in the process—while also capturing top honors in the recent CME Group 2012 Electronic Trading Challenge.

The Booth team beat out 163 other groups from colleges and universities around the world. The four team members each won a $500 scholarship and an opportunity to apply for a summer internship at the world’s leading commodity and derivatives exchange.

The CME Group sponsors the event to give students “exposure to what trading is like on a professional platform and a better understanding for how markets react in real-time. They also gain in-depth understanding of the two main functions of futures trading: risk transfer and price discovery,” a spokesman for the CME said.

The Booth team consisted of students from three of Chicago’s four MBA programs and included Christopher Myers, Thomas Oakes, Sathya Ganesan, and Vasily Gorev. During the month of the challenge, the four worked together “virtually,” using email, text messaging, and conferences calls to communicate. In fact, it wasn’t until after the contest ended that the four students found themselves together in the same room.

Myers, an Evening MBA Program student, had taken the lead on assembling the Booth team. He and Gorev, a Full-Time MBA Program student, had previously paired together—and won—the 2011 CNBC MBA Faceoff Challenge, a similar trading content. Ganesan, and Weekend MBA Program student, reached out to Myers to form a team for the CME Electronic Trading Challenge. Myers then brought on Gorev and Oakes, an Evening MBA student, to round out the team.

“Each one of us brought certain strengths to the table,” Myers says. “Vasily is solid with the fundamentals: supply and demand, and economic and political issues that could affect price. Thomas is good with the technicals: forecasting the price by studying data. Sathya trades energy in his personal portfolio and brought a nice mix of fundamental and technical knowledge. And I brought my experience as a trader and a feel of the psychology of the market.”

In the preliminary round, which ran from February 15 to March 1, all 164 teams were given $100,000 to manage and were told to make at least five trades a day using a combination of crude oil and gold futures. By the end of the round, Booth was one of 16 teams to make the finals, with a paper return of 23 percent on its investments.

In the finals, held March 5 to 16, the Booth team was given $250,000 to manage, and grew it to $309,600, for a 23.8 percent return.

The team members employed a number of strategies. They took into account the typical seasonal fluctuations of oil prices, which tend to fall in winter and rise in spring. There also were economic and political considerations, such as volatility in Iran and the debt crisis in Greece.

“There’s a kind of March Madness quality to it, as you try to conduct an analysis of the fundamentals of the market,” says Ganesan, a technical program manager at Intel Corp., who flies in from Chandler, Arizona, each weekend to attend classes.

Oakes also brought technical analysis to the contest. He studied data on crude oil and gold and determined certain price points at which the team should make trades and expect to earn profits.

Through emails, texts, and weekly Sunday conference calls, each team member shared his analysis and opinions to shape the next week’s activities. The consensus was to go long on crude oil, betting it would rise in price, and short on gold, predicting that the price would fall.

While some teams were trading hundreds of contracts a day, the Booth team was conservative, sometimes only executing the required five trades a day. In the end, the strategy proved to be a winning formula.

“It’s always nice to know your analysis can make you money in real time,” Gorev says.

The real value, for Gorev, was being able to work alongside fellow Booth students and represent the school.

“Working with colleagues from Booth was a fantastic experience,” continued Gorev. “I am looking forward to teaming up again soon—hopefully next time in the corporate world with real money on the line.”

Indeed, Myers and Oakes already are creating a new hedge fund, named Satellite Capital, LLC, that they will manage together after graduation this spring. But for now, they’re satisfied in having done well in the name of Chicago Booth.

“I’m extremely grateful for what I’ve learned at Booth. I’m passionate about the place,” Myers says. “I’m so glad we did well and represented the school well. It’s our way of giving back.”

The CME Group also appreciated the participation from Booth.

“We are always pleased to see the overwhelming interest from the students at Booth,” the CME Group said in a statement. “They are often the first to sign up and they take the competition very seriously, which is reflected in their performance.”

John T. Slania