Question

The contract size for platinum futures is 50 troy ounces. Suppose you need 400 troy ounces of platinum and the current futures price is $1,335 per ounce. How many contracts do you need to purchase? How much will you pay for your platinum? What is your dollar profit if platinum sells for $1,375 a troy ounce when the futures contract expires? What if the price is $1,280 at expiration?

Answer 1

Given,

Contract size = 50 troy ounces

Required = 400 troy ounces

Current futures price = $1335 per ounce

Solution :-

No. of contracts = required/contract size

= 400/50 = 8 contracts

You need to purchase 8 contracts

Payment for platinum = Contract size x current futures price

= 50 troy ounces x $1335 per ounce = $66750

Sale price = $1375

Gain per ounce = Sale price - current futures price

= $1375 - $1335 = $40 per ounce

Dollar profit = Required x gain per ounce

= 400 ounces x $40 per ounce = $16000

Sale price = $1280

Loss per ounce = Current futures price - Sale price

= $1335 - $1280 = $55 per ounce

Dollar loss = Required x loss per ounce

= 400 ounces x $55 per ounce = $22000