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Futures, number of contract

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A. The soybean contract has a trading unit of 5,000 bu. If you would like to hedge on 15,000bu, how many futures contracts should you buy or sell?

b. The feeder cattle contract has a trading unit of 50,000 pounds. If you would like to hedge on 750,000 pounds, how many futures contracts should you buy or sell?

c. The gold contract has a trading unit of 100 troy ounces. If you would like to hedge on 15,000 troy ounces, how many futures contracts should you buy or sell?

d. The Dow Jones Industrial Average contract has a trading unit of $10 x the Dow Jones Industrial Average Index. If you have 5 contracts in the long position, what is the value of your loss if the Dow Jones Industrial Average Index falls by 13 points?

e. The Nasdaq 100 contract has a trading unit of $100 x the Nasdaq 100 index. If you have 4 contracts in the short position, what is the value of your loss if the Dow Jones Industrial Average Index rises to 8 points?

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Solution Summary

The feeder cattle contract has a trading unit of 50,000 pounds. If you would like to hedge on 750,000 pounds, how many futures contracts should you buy or sell?

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To solve the first three contracts, we will simply divide the total quantity to be hedged by the size of standard contract. Let us see this.

a. 3 ...

Solution provided by:
Sandeep Bardia, MBA
Education
  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
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