Question

You go long on 50 oil futures contracts on NYMEX when the futures price of oil is $80 a barrel and close out your position three days later at a futures price of $84 a barrel. One future contract is for 1,000 barrels. What are your gain or losses

Answer 1

Note: Long position means, buying of the futures.

Calculate the cost of buying futures as follows:

Cost of futures = No. of contracts * 1000 Barrels * Opening future price

= 50*1000*$80

= $4,000,000

Calculate the selling value of futures as follows:

Selling of futures = No. of contracts * 1000 Barrels * Closing future price

= 50*1000*$84

= $4,200,000

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Calculate the gain or loss as follows:

Gain = selling of futures - Cost of futures

= $4,200,000 - $4,000,000

= $200,000

Therefore, the gain on futures is $200,000.