Question

1. What would happen if your long (or short) futures contracts weren’t closed out automatically for...

1. What would happen if your long (or short) futures contracts weren’t closed out automatically for you at the end of the month (at the delivery date)?

2. What is the profit (or loss) generated on a position that is long 5 contracts @ $80.00, when the price of crude falls to $75.00?

3. If there was an increase of 5 million barrels of crude in storage for a particular week, why is the price reaction different given an expectation that the increase would be 4 million barrels versus 6 million barrels?

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Answer #1

1. Once an options or futures contract were not closed automatically at the delivery date , the contract is invalid. These options are automatically exercised if they are in the money at the time of expiry. If a trader doesn't want to be exercised, they must close out or roll the position by the last trading day.

2. loss on contract= 5*( 80-75 ) = $25

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