On 25 February 2020 a bond portfolio manager sells 150 June 2020
three-year treasury bond futures contracts at a quoted price of 99.50. On
20 March she buys 150 June 2020 three-year treasury bond futures
contracts at a quoted price of 99.70. What profit (or loss) has she made
in the three-year bond futures contract? Show all working.
Answer:
Futures contracts- Are the legal derivative contracts that buy or sell a particular asset or security on a predetermined price in the future. Asset can be shares, commodities or currency.
Long positions in futures- When trader is bullish towards a particular security or overall market then he buys the future contract and sell it later for getting profit.
Short positions in futures- When trader is bearish towards a particular security or overall market then he takes short position and square off the position by buying the same back. This is done for hedging purpose.
In this question; Manager first sells (shorts) 150 June treasury futures at $99.50 and buys it at $99.70
She has made a loss because she sold at lower price and bought at higher price.
Loss = Purchase price - Selling price
Loss: 99.70-99.50 = $.20
Total loss = Contract size * Loss per lot
Total loss = 150 * .20
Total loss = $30
On 25 February 2020 a bond portfolio manager sells 150 June 2020 three-year treasury bond futures...
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