Question

In February 2019, Adam longed six December futures contracts on wheat at $8.2/bu where the size of one contract is 5000 bushels. Later in August 2019, he entered into a short position on three November futures contracts on corn for $8.28/bu. In September 2019 he shorts six November futures contracts on wheat for $8.32/bu and finally in October 2019, he longs three December futures contracts on corn for $8.34/bu. 5. www ww Does Adam need to deliver or collect any commodity at the end of the year (i.e., at maturity of those futures contracts)? Why or why not? b. а. Calculate Adam's profit/loss from his position in the corn futures? Calculate Adam's profit/loss from his position in the wheat futures? d. c. Given the following information, does Adam need to buy any commodity from the spot market to fulfill his obligations in the futures contracts? Why or why not?

Answer 1

Answer:

As per the given question

a) In future contracts generally contracts are settled by taking cross positions. For example if u have long position then at the time of maturity investor need to take short position to honour the contract and the balance is settled in cash.

However if investor not take any cross position on maturity of contract then investor have to purchase the commodity if long position is taken or deliver the commodity if short position is taken.

In the case investor has short position earlier then investor must have the required quantity with them.

Contracts	Maturity	Position	Commodity	Price	Number of contract	Value
1	December	Long	Wheat	8.20/Bu	6	246000
2	November	Short	Corn	8.28/Bu	3	124200
3	November	Short	Wheat	8.32/Bu	6	249600
4	December	Long	Corn	8.34/BU	3	125100

In the given table

Both Short positions are in November ( Maturity) and there is no cross position on November Hence Adam must have required quantity with him to deliver in November.

Wheat = 5000 Bushels per contract * 6 contracts = 30000 Bushels.

Corn = 5000 Bushels per contract * 3 contracts = 15000 Bushels.

  

Both Long positions are taken in December ( Maturity ) and there is also not any cross position contracts hence Adam needs to collect the commodity

Wheat ( 6 contracts ) = 30000 Bushels.

Corn ( 6 Contracts ) = 15000 Bushels.  

B)

Profit / Loss on Corn Future =

Long = $125100

Short = $124200

Loss = $900

C)

Profit / Loss on Wheat Future =

Long = $246000

Short = $249600

Profit = $3600

D)

Adam need to buy the short position future contract whose maturity is in future.

He need to Buy 30000 Bushels of wheat and 150000 Bushels of Corn at spot market to fulfill the obligation of November's future contracts.

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