Investor A has signed a short oil futures contract for delivery in one year. Inv

Question

Investor A has signed a short oil futures contract for delivery in one year. Investor B has signed a long oil futures contract for delivery in one year. Which of the following statements is true? More than one answer is possible.

Question 5 options:

1.) If the oil price for delivery in 1 year goes up the short side makes money.

2.) If the oil price for delivery in 1 year goes up the short side loses money.

3.) If the oil price for delivery in 1 year goes up the long side makes money.

4.) If the oil price for delivery in 1 year goes up the long side loses money.

Explanation / Answer

The person who thinks prices of oil goes up , he will enter into long futures contact to lock in some price.So he will get benefited if the current price of oil goes even above the locked price, as he can buy at locked price which is lower than the current price(need to pay less than current price). So will get benefited if price goes up

The person who thinks prices of oil goes up, he will enter into short futures contract to lock in some price. So he will get benefited if the current price of oil goes even below the locked price, as he can still sell at locked price which is higer than the current price(will get more than the current price.So will get benefited if price goes down

Answer: 2&3

2) If the oil price for delivery in 1 year goes up the short side loses money

Because, the long side will make money as prices goes.So short side will incurr losses

3) If the oil price for delivery in 1 year goes up the long side makes moeny

Because as the price goes up long side will get benefited

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