On SEP 3 2018 the JUL 2019 WTI futures is traded on NYMEX for $75/barrel and the

Question

On SEP 3 2018 the JUL 2019 WTI futures is traded on NYMEX for $75/barrel and the SEP WTI futures on NYMEX is traded for $77/barrel. A speculator decides to open a Calendar spread. The speculator expects the Spread to widen relative to the current spread so she wishes to buy the current spread.

What futures positions are opened by the speculator on SEP 3?

On JUN 2 2019 the JUL 2019 WTI futures on NYMEX is traded for $80/barrel and the SEP 2019 WTI futures on NYMEX is traded for $85/barrel. What positions must the speculator take in order to exit the market?

Calculate the speculator’s per barrel profit/loss.

Explanation / Answer

(i) Since the speculator expects the spread to widen. There are 2 positions available in this situations. short term buy position and long term sell position.

(ii) In order to exit the market the speculator should go long and short to offset the position.

The futures speculator stands to profit as long as the underlying futures price goes up. if the July futures were bought at $75/barrel and the price goes to $80/barrel, Profit= $5/barrel.

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