136% Profit In Just Five Days

Well, that (virtually) happened. Week one of our second annual college trading competition has drawn to a close and I want to share some early observations about trading behaviors from the over 1,600 students from 166 schools registered for the thinkorswim Challenge. The most noteworthy of which is that one team tuned a 136% profit in just 5 days.

Let’s take a look at how they did it, starting with the leaderboard. The first place team is comprised of four students from Lynn University. At close of trading on Friday, Lynn Students were up an impressive 136% followed by Team migos of San Diego State University and Team SIGnificant Gains from the University of North Texas. It’s worth noting that the team that won the competition last year was also from the University of North Texas. What’s going on with the finance program at UNT?

Leaderboard Week 1:

Below is a 5 day historical view of the teams that ended the week in the top 5. As you can see, The team from Lynn University jumped from near bottom on Wednesday to the top of the leaderboard on Thursday.

So the question you have to be wondering is, what made their P/L jump so significantly on Thursday?

College kids love to Netflix and trade.

If you’ll recall, Netflix, Inc. NFLX reported earnings on Wednesday after the close. The street viewed earnings as a disappointment because new subscriptions did not meet analyst estimates either domestically or internationally. As a result, shares of Netflix fell almost 4% in after hours trading and opened on Thursday at $103.77.

So check out this trade that Team LynnStudents placed. It was a butterfly spread for a .05 debit.

For illustrative purposes only. Not a recommendation.

Here’s the risk profile of the trade:

For illustrative purposes only. Not a recommendation.

Basically, they risked $20k to make $777k. This is the kind of trade I like to call a lottery ticket because the probability of profiting is not particularly high. In the case of this trade, the probability of expiring between the break evens was only 10%. But somehow they nailed it. The total profit on the trade was $388k. Obvi, this isn’t how you would normally trade using your own money, but this is a paper trading contest with the intent of teaching students about different strategies that they can employ. These kids are in it to win it and they are taking some risks.

We reached out to Rigers Memko, one of the members of SIGnificant Gains and here’s what he had to say.

“First off, the thinkorswim Challenge provides us with an incredible learning platform that has an enormous learning curve! Despite the market volatility these past weeks, our trading style and outlook haven't changed. As a team, we decided to treat the competition as if we were trading real money, and we have incorporated the principles of value investing in our trading. Our main objective is to take earnings off the table and to seek and to capitalize on the next best opportunity.

During our team meetings we discuss past and current economic trends such as oil prices, dollar strength, and market volatility, to determine which companies were in the best position to capitalize on these trends. Thus far, we have mostly traded on the earnings of companies that we know well, companies that we own in our portfolio. Our team is fairly new to options trading and we are excited to take on a little more risk as we grow.”

What else are the kids trading these days?

I love looking closely at what Gen Z likes to trade because they bring their own unique demographic lens to the markets. Here are some aggregated trends across the competition.

During the first week, over 13,000 trades were placed. The day by day breakout is below.

As leverage is the name of the game in a trading competition, we weren’t surprised to see that over 64% of the trades placed in week 1 were option trades. About 53% of the trades were bullish, 39% were bearish, and the remainder were volatility plays.

The most active team placed over 605 trades. But trading actively doesn’t always translate into huge wins. It’s just a different tactic. As of closing bell Friday, that team was up 2.4% for the competition.

Breaking it down, here are the 10 top traded symbols from all the teams in the thinkorswim Challenge for week one:

Obviously, Netflix was an earnings play. There has also been quite a bit of directional movement in the broad markets which explains the action in SPY. Tesla had a nice intraday range on the week. And though the following stocks didn’t hit the leaderboard, these are the companies that our young traders are the most bullish about: Starbucks Corporation SBUX, EMC Corporation EMC, Boeing Co BA, and Alibaba Group Holding Ltd BABA.

As we closed out the day on Friday, the top symbols held in portfolios heading into the weekend are listed below.

Students in the competition appear to love Tesla Motors Inc TSLA. That could be because Tesla is socially responsible, or that the students favor electric cars. And we also know that they are Apple loyal from a handheld phone perspective. Of the students who have traded with a mobile device, almost 80% of the trades originated from iOS mobile.

And finally, here’s a look of the sector heatmap for all portfolios as of the close on Friday.

Stay tuned for more insights next week as the competition progresses and be sure to keep an eye on the leaderboard for up to date P&L information.

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