Thursday, December 10, 2009

Frozen Concentrated Orange Juice Futures - Zero Sum Games for the Ages

Two Zero Sum Games from the movie Trading Places:


The first - The Duke brothers, Randolph and Mortimer, on a bet to decide the age old question of nurture or nature, decide to switch the lives of a young, successful commodity trader, Louis Winthorpe III, with the life of street vagrant, petty criminal Billy Ray Valentine.  Much to the delight of Randolph Duke, the switch couldn't have been a bigger success.  Louis ends up destitute, unemployed and living with a prostitute, while Billy Ray, now known as William, has become a successful and honest trader.  So there is the first part of the zero sum game - one person became one of life's winners and the other one of life's many losers.

The Second - Louis and Billy Ray become aware of this game that was played by the Duke brothers and decide to turn the tables. The Duke brothers plan to obtain the forthcoming orange crop report - a report that will decide the prices of FCOJ in the coming year. Louis and Billy Ray intercept the crop report and replace it with a phony giving the Duke brothers the wrong information. So before the real crop report is made public the Duke Brothers buy like crazy driving up the price, while Louis and Billy Ray begin to short sell FCOJ contracts. While the trading is in session the crop report is released and the Duke brothers realize they've made a mistake. The new information is out, prices go down and Louis and Billy Ray begin covering their short positions. End of the Day, margin calls and Randy and Morty and now dead broke while Louis and Billy Ray made a fortune.

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