Question

Financial futures are traded on the CME Group market. A large array of products are covered: corn, soy, oil, natural gas, electricity, gold, copper, Euros, major equity indices, and interest rates.

They give the opportunity to sophisticated investors to speculate on the price changes in many markets.

Recently, the price of oil futures went extremely low. Suppose you think the price of oil will go back up. What position should you take on the oil futures market: long or short? Explain.

Answer 1

Recently the price of Oil features went extremely low into even the negative zones in the derivative segment because of the risk associated with the settlement, as too many people were unwinding on their positions and there was also a storage cost involved with oil so it was reflected in negative zones.

I will take LONG position in the futures market as it will reflect my bullishness on Oil as a commodity.

As the things will stabilize, I will always want to go long on oil, because it is trading at all time low and it is a commodity which will never go out of the need, so I will be LONG on this commodity for a longer perspective so I can even roll onto futures contract until and unless I get a a good rate of return, because there is very low probability of trading it into the negative zones.