A trader enters into a LONG position of corn futures contract when the futures is trading at $3.62/bushel. The contract is for the delivery of 5,000 bushels in seven months. Suppose the trader holds the position till maturity.
(1) What is the payoff function of the trader at maturity if the futures price is FT ? (plug in the numbers)
(2) What does the trader gain or lose if the corn price is $3.52 at maturity?
(3) Draw the corresponding position diagram and mark the gain/loss in (2) on the diagram.
(4) Suppose that instead of a long position, the trader enters into a short position (futures price and contract specifications are still the same as stated above)
(i) What is the payoff function of the trader if the futures prie is FT ? (plug in the numbers)
(ii) What does the trader gain or lose if the corn price is $3.72 at maturity?
(iii) Draw the corresponding position diagram and mark the gain/loss in (4)-(ii) on the diagram.