CH14 - 14-1Chapter 14Futures Contracts14-2Futures...

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Unformatted text preview: 14-1Chapter 14Futures Contracts14-2Futures ContractsPoints in timeDelivery dateEnter into contractNowShort delivers commodity and receives payment.Long receives commodity and makes payment.14-3Silver FuturesPoints in timeDelivery dateEnter into contractNowShort delivers silver and receives $8.00.Long receives silver and pays $8.00.14-4Offsetting a Short Futures PositionPoints in timeDelivery dateMarch 15March 16Short at $8.00 per ounceSeptember 15Long at $8.05 per ounce14-5Short at $8.00Offset (Long) at $8.05+ $8.00- $8.05 = -$0.05Long at $8.00Offset (Short) at $8.05- $8.00+ $8.05 = +$0.05Zero Sum GamePrice Rises: Long Gains + Short Loses14-6Short at $8.00Offset (Long) at $7.70+ $8.00- $7.70 = +$0.30Long at $8.00Offset (Short) at $7.70- $8.00+ $7.70 = -$0.30Price Falls: Long Loses & Short Gains14-7Usually delivery is not made because it is cheaper to offset than to take delivery. Transport costs.There is a Clearinghouse which keeps track of the longs and shorts. The total number of longs = total number of shorts and is called the Open Interest.14-8Longs Shorts Helen4Sherman 3Ellen1Herman2Total Longs = Total Shorts.Suppose Helen offsets 1 contract. What happens to the Open Interest?Open Interest--Day 114-9The New Open Interest Depends upon Who Goes Long.Case 1:A new long enters the market. Melon goes long 1 contract.Longs Shorts Helen3Sherman 3Ellen1Herman2Melon155Open Interest is unchanged.Open Interest--Day 214-10Case 2:Helen offsets 1 and Sherman offsets 1.Longs Shorts Helen3Sherman 2Ellen1Herman244Open Interest decreases if a long and a short offset.Open Interest would increase if there is an additional long contract and an additional short contract....
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This note was uploaded on 06/07/2011 for the course FIN 4243 taught by Professor Dudley during the Spring '08 term at University of Florida.

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CH14 - 14-1Chapter 14Futures Contracts14-2Futures...

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