How do I trade Bungees?

Each Bungee Contract is defined by:

Underlying Asset:	An asset (e.g. gold or oil futures, currencies, equity index futures, etc).
Contract Value:	The maximum payout of the contract (ranging between $100 and $500 depending on the asset).
Tick Value:	The dollar value per tick movement in the underlying market (i.e. traders receive $1 per $0.01 tick movement in the underlying Crude Oil price).
Tick Size/Minimum Price Increment:	The smallest incremental movement in the price of the Bungee contract.
Expiration Date:	The date on which the Bungee expires and the expiration value is calculated.

Example

2:30PM Feb Crude Oil $40.00 to $45.00 (W) Bungee

Underlying: NYMEX February 2009 Crude Oil Futures contract
Total Contract Value: $500
Tick Size/Minimum Price Increment: $0.01
Tick Value: $1 (per $0.01 movement)

Trading Cash Requirement
Traders can enter prices in increments of $0.01 between the Bungee's floor ($40) and cap ($45). The buyer's cost equals the number of ticks above the floor, multiplied by the tick value. For the seller, the cost to establish the short position is the total contract value minus the buyer's cost.

For example, with a trade price of $43.00, the cost to the buyer would be $300 [$43.00 (trade price) - $40.00 (floor) = $3.00 (300 ticks) * $1 = $300] and the cost to the seller would be $200 ($500 max contract value - $300 buyer's cost).

Settlement
Final payout is based on the expiration value of Crude Oil futures, relative to the Bungee's range. For buyers, the final payout is as follows:

Condition	Payout
Expiration value of Crude is < = floor	$0
Expiration value of Crude is > = cap	$500
Expiration value of Crude is between floor and cap	$1 per $0.01 tick above the floor

For sellers, the final payout is as follows:

Condition	Payout
Expiration value of Crude is < = floor	$500
Expiration value of Crude is > = cap	$500
Expiration value of Crude is between floor and cap	$1 per $0.01 tick below the cap

Bungees

HedgeStreet Bungees (limited risk futures) enable you potentially to profit from rising or falling prices while limiting your risk exposure to extreme price changes in volatile markets. These cash-settled contracts offer traders a variable payout structure while limiting the value of each contract at the upper and lower ends of each Bungee's range if the value of the underlying moves above the cap or below the floor. A trader's potential loss will not exceed the amount invested, and the potential gain is limited by the contract's cap (for buyers) or floor (for sellers).

Like a traditional futures contract, Bungee contracts are bought if the trader expects the price to rise, or sold if it's expected to fall. Traders gain or lose depending on how much the underlying price goes up or down. Bungees have total contract values of between $100 and $500, depending on the contract's range and tick value. Likewise, the gain or loss per tick varies depending on the contract, but ranges from $.01 to $1.00.

Unique Bungee Contract Features:

• Potentially low initial cost and ease of entry to the HedgeStreet marketplace
• Small contract values ranging from $100 to $500
• Short-term contract durations of 1 week
• Well defined risk and reward payout structure

Choose BUY if you expect the market to rise. If the underlying market rises, your long position can increase in value up to the contract's maximum value. If the underlying market falls, your potential loss will not exceed your initial investment, even if the underlying market falls below the floor.

Choose SELL if you expect the market to fall. If the underlying market falls, your short position can increase in value up to the contract's maximum value. If the underlying market rises, your potential loss will not exceed your initial investment, even if the underlying market rises above the cap.

Cash Requirement:
The cash requirement is the maximum that can be lost if the underlying ends at or below the floor (lower level) for buyers, or at or above the cap (upper level) for sellers. For a buyer, it is the contract price (calculated as the number of ticks above the floor, multiplied by the tick value). For a seller, it is the total contract value minus the contract price.

Settlement:
Final payout is based on the expiration value of the underlying asset relative to the Bungee's range. If the underlying asset expires at or below the floor, the payout for the buyer is $0 and the payout for the seller is the contract's maximum value. If the underlying asset expires at or above the cap, the payout for the buyer is the contract's maximum value and the payout for the seller is $0. If the underlying asset expires between the floor and the cap, the buyer receives $X per tick above the floor, up to the expiration value and the seller receives $X per tick below the cap, down to the expiration value.

Bungee Example

3PM EUR/USD 1.3900 to 1.4100 (W) Bungee

Underlying: Spot EUR/USD exchange rate
Total Contract Value: $200
Tick Size/Minimum Price Increment: 0.0001
Tick Value: $1 (per 0.0001 movement)

Assume you are bullish on the spot EUR/USD currently trading at 1.3982. Looking at the 3PM EUR/USD 1.3900 to 1.4100 (W) Bungee that expires at the end of the week, you decide to be a buyer. You enter the following order, which is slightly below the market:

• Buy 1 3PM EUR/USD 1.3900 to 1.4100 (W) Bungee at 1.3962

As a buyer, the price you pay to purchase the contract is the number of ticks above the Bungee's floor, multiplied by the tick value for the asset. Since each underlying EUR/USD tick movement of 0.0001 is equivalent to $1, your cost to initiate this trade (the "contract price") will be $62 (plus an exchange fee), calculated as follows:

• [1.3962 (initial price) - 1.3900 (floor) = 0.0062 (62 ticks) * $1 tick value = $62]

Assuming your order is executed, you are long at 1.3962. The person on the other side of the trade, the seller at 1.3962, had a cost of $138 (plus an exchange fee), calculated as follows:

• [$200 (contract value) - $62 (buyer's contract price) = $138]

Note: The seller's cost can also be calculated as the number of ticks below the Bungee's cap, multiplied by the tick value for the asset:

• [1.4100 (cap) - 1.3962 (initial price) = 0.0138 (138 ticks) * $1 tick value = $138]

Scenarios

1. The market moves against the buyer's long position and the EUR/USD expires below 1.3900. The buyer can only lose the initial cost, which is the maximum risk, of $62 (plus exchange fees).

2. The buyer holds the Bungee to expiration as the market is rising, and HedgeStreet calculates an expiration value of 1.4025 for the 3PM EUR/USD. The buyer's payout is $125 (less exchange fees), calculated as follows:

• [1.4025 (expiration value) - 1.3900 (floor) = 0.0125 (125 ticks) * $1 tick value = $125]

This $125 payout reflects a return of the buyer's original cost of $62 plus a profit of $63.

3. The buyer holds the Bungee to expiration as the market rises strongly, and HedgeStreet calculates an expiration value of 1.4140 for the 3PM EUR/USD. Since the expiration value exceeds the cap, the buyer's payout is the contract's maximum value, or $200 (less exchange fees), calculated as follows:

• [1.4100 (cap) - 1.3900 (floor) = 0.0200 (200 ticks) * $1 tick value = $200]

This $200 payout reflects a return of the buyer's original cost of $62 plus a profit of $138.

Note: When the expiration value is above the cap, the buyer's payout is limited to the contract's maximum value (in this case, $200).

4. The Bungee is trading at 1.4001 with 2 days until the contract expires. The buyer has a change of market view and decides to get out of the position prior to expiration. If the long position is liquidated at 1.4001, the net profit would be $39 (less exchange fees), calculated as follows:

• [1.4001 (liquidation price) - 1.3962 (initial price) = 0.0039 (39 ticks) * $1 tick value = $39]