How do Dan Aykroyd and Eddie Murphy's characters bankrupt the Dukes at the end of "Trading Places?"

Question

I cannot figure out entirely how Louis and Billy Ray manipulate the frozen orange juice concentrate crop report to bankrupt the Duke brothers. I think they know the crop will be plentiful so they promise to sell the commodity to others as the price goes up. How do they sell something they don't own? Do they own it at the end of the day? I think they make their money on the difference in the price they sell it for and the price it is at the end of trading. Any help would be appreciated!

Answer 1

The answer in on word is Arbitrage, the buying of something cheap and then the selling of that something for more money before the bell rings to end the buying and selling period.

The boys invested their money in buying Orange Juice futures early at a regular price in the early session. The Dukes want to buy all the futures they can so they will pay for them at higher price than the boys paid thinking the futures will only go higher in price after the futures report is read. Right before the futures report is annnounced the boys sell their futures for the highest price possible. The report is read and it is good meaning the supply of OJ will be plentiful and the price should go down instead of up like the Dukes think. Suddenly everybody has loads of futures at a high price they need to get rid of before they have to settle up at the bells end. The Dukes are the worst of all. When the price drops to half of what it started at the boys start buying back all the shares they can with all the money they made in the early session from everyone but the Dukes. The bell rings and the boys have secured a majore portion of the Orange Juice market at a fraction of the cost while the Dukes are stuck with a mountain of overpriced future contracts some of which were purchased on Margin, (credit), and according to the rules they have to settle up at bells end. The dukes owe more money that they have. Assuming the market stabilizes at more than the boys paid for their future, should they sell them they will be even wealthier. While the Dukes will only be poorer.

To simplify it the boys bought around $900,000 worth of futures which they sold for about $2,700,000, and when the prices drop they bought about $2,900,000 worth of futures gettin seven times as many shares as before, resulting in prices going back up 40% making that investment worth $4,000,000 less what they took on margin, so the wound up profiting $3,000,000 on the day and since it remains in futures it is not taxable..

Answer 2

I don't completely understand how it works, but it's called futures - Remember when Eddie Murphy tells the Duke brothers "you guys are bookies", because people bet that the price of something is going to go up or down? Well, since they had insider information, that the Dukes thought they had, they were able to "bet" right. And I think you run an account which has to be settled at the end of the day, which is why the Dukes went bankrupt. They bet the wrong way, and then couldn't afford to pay off their "wagers".

Answer 3

Okay, but you asked for it!...

After learning that the wager was made for a dollar, Winthorpe's first reaction is to start cleaning his rifles. However, Valentine points out that "the best way to get back at rich people is to turn them into poor people." Along with Ophelia and Coleman, who insists on participating in a plan to ruin the Dukes, Winthorpe and Valentine combine their knowledge of the Dukes' shady dealings and realize that the Dukes have paid Clarence Beeks — the same man who framed Winthorpe earlier — to provide them an advance copy of the official orange crop report and use that knowledge to corner the Frozen Concentrated Orange Juice (FCOJ) market. Valentine and Winthorpe decide that they must exchange a false crop report with the real one, and board Beeks's New York-bound train, where they plan to surreptitiously swap Beeks's briefcase with a ringer. This would cause the Dukes to misplay the market and bankrupt themselves in the process. Simultaneously, Valentine and Winthorpe use the correct information to make themselves rich.


Explanation of climax scene
With the authentic orange crop report indicating a good harvest of "fresh" oranges, "frozen" concentrated orange juice (FCOJ) would be less important to food producers and so would be likely to drop in price once traders heard the news. However, by way of a fraudulent report, the Duke brothers are led to believe that the orange harvest would be less successful, necessitating greater demand for stockpiled FCOJ in orange products in the coming year, thereby driving the price up. By capitalizing on this knowledge (and the Duke brothers' missteps), the protagonists are able to profit by manipulating the futures market as follows:

Unlike conventional stock, futures contracts can be sold even when the seller does not yet own any of the commodity. A contract to sell, say, 1000 pounds of FCOJ at $1.50 per pound in February merely indicates the seller's obligation to provide and the buyer's obligation to purchase the product at the specified price and time. It does not matter how or where the seller gets the product, as long as, one way or another, he is able to provide it at that price at that time, even if it results in a sale at a loss to him.
In this case, Winthorpe and Valentine first "sell" FCOJ futures at roughly $1.45 per unit, a price inflated by the Dukes themselves (the Duke Brothers' buying leads other traders to believe that the Dukes are trying to corner the market, causing a buying frenzy). Then, when the price falls as a result of the release of the real crop report indicating a good harvest, Winthorpe and Valentine buy futures at roughly $0.22 per unit. Thus, for every future unit they had previously sold at $1.45, they purchase a matching amount for only $0.22, resulting in a profit of over $1.20 per unit (over 545%). Though it is not stated in the movie exactly how much they make, if they invested roughly $500,000 from a combination of Winthorpe/Valentine's investment, the Duke's money from buying the "fake" report from a fake Clarence Beeks (Paul Gleason) and Coleman's and Ophelia's savings, they would have turned it into over $2.7 million. It is strongly implied that they purchase additional futures on margin and make dozens (or hundreds) of millions more, since a lesser amount would not bankrupt the Dukes.
At the same time, the Duke brothers purchase enormous quantities of FCOJ futures, even at relatively high prices, because they incorrectly expect that the crop report (falsely suggesting a greater need for stockpiled orange juice) will create a demand at even higher prices, securing them a profit. When it turns out that the leaked report they were given was fraudulent and the true report is revealed, the price begins to plummet before they are able to sell off their contracts. So, they are left with an obligation to buy millions of units of FCOJ at a price more than a dollar per unit higher than they can sell them for, bankrupting them.

Answer 4

they make the Duke's stock in OJ (frozen orange juice) worthless.

Answer 5

Nay