Asked by Grant Burry on Jun 29, 2024
Verified
You hold one long oil futures contract that expires in April. To close your position in oil futures before the delivery date, you must
A) buy one May oil futures contract.
B) buy two April oil futures contracts.
C) sell one April oil futures contract.
D) sell one May oil futures contract.
E) None of the options are correct.
Long Oil Futures Contract
An agreement to buy oil at a specified price on a specified future date, bet taken with the expectation that oil prices will rise.
Close Position
The act of selling or buying securities to offset an existing position, thereby ending the investor's exposure to that investment.
Delivery Date
In the context of futures contracts, it is the specified date on which the underlying asset must be delivered by the seller to fulfill the terms of the contract.
- Learn about the fundamental mechanisms that drive profit and loss in futures trading.
Verified Answer
LM
Leann McaulayJul 03, 2024
Final Answer :
C
Explanation :
To close a position in futures before the delivery date, you must take an opposite action in the same contract month. If you hold a long (bought) position, you close it by selling a contract of the same type and month. Therefore, selling one April oil futures contract is the correct action.
Learning Objectives
- Learn about the fundamental mechanisms that drive profit and loss in futures trading.