Question

if the nymex price is 45 dollars and the ipe price of crude oil is 50 dollars, justify which trading strategy you will follow and why.

Answer 1

Nymax price in the spot market $45 and price of the crude oil in international petroleum exchange is $50, one can try to make money by arbitraging between both the contracts and make money.

One can try to go long in the Normal spot market and he can make money by selling at the future price in the longer period of time & one can also enter through the future Markets and he will be expecting the market to enter into an equilibrium in order to make money so descrepency between both the rates are going to get evaporated and investor will be likely to make money by arbitraging. He will be betting upon the fact that upon maturity of the contract,prices of normal Markets and exchange rate are going to get equivalent and the premium will be evaporating.

Hence one can make money through the process of arbitrage in between the spot market and the Forward Market and there is a difference in the both rates so one can try to enter into going long or going short according to his preference.