Homework Answers
Profit for a long position trader per gallon is= price of
ethanol at maturity- settlement price
= $2.07-$1.97
= $0.1
Profit for a long position trader for 29000 gallons = (price of
ethanol at maturity- settlement price)×29000
=($2.07-$1.97 )×29000
= $2900
Note: Long position benefits when the actual price of ethanol at maturity turns out to be higher than the settlement price.
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Assume that J&L went long 400 Jun HO futures contracts on
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F0=1.386. (They would also have gone long 400 contracts
for Jul, Aug,…, May to hedge June ’09 through April ’10 purchases,
but we don’t need that here). At that time spot price of DF was
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One week later, J&L closed 100 contracts (by shorting 100
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million gallons of DF at...
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