Explanation:
For a short futures position, the payoff is:
where:
So the gain per pound is:
210 - 195 = 15\ \text{cents} = \`$0.15`Total gain:
Correct answer: D. Gain of $7,500
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Question 138.2: Assume the spot price of cotton, , is 200 cents per pound. A trader enters into a short cotton futures contract when the futures price, , is 210 cents per pound. The contract is for the delivery of 50,000 pounds. If the price of cotton at the end of the contract, , is 195 cents per pound, how much does the trader gain or lose?
A
Loss of $7,500
B
Loss of $5,000
C
Gain of $5,000
D
Gain of $7,500