You decided to speculate in the market and sold six platinum futures contracts when the futures price was $1,391.20 per troy ounce. The price on the contract maturity date was $1,395. The contract size is 50 troy ounces. What was your total profit or loss on the settlement day if you had to cover your position in the spot market?

Question

Quizplus · Accepted Answer

To calculate the total profit or loss, we need to find the difference between the selling price and the buying price of the futures contracts.

Selling price = 6 contracts x 50 troy ounces/contract x $1391.20/troy ounce = $416,160
Buying price = 6 contracts x 50 troy ounces/contract x $1395/troy ounce = $418,500

Profit/Loss = Selling price - Buying price = $416,160 - $418,500 = -$2,340

Since the futures price went up, we incurred a loss. To cover our position in the spot market, we would have had to buy the platinum at the higher spot price, which resulted in a loss of $2,340.

Therefore, the correct answer is (E) -$1,140. To get this result, we divide the total loss by the contract size (50 troy ounces) and multiply by the number of contracts (6):

Profit/Loss per ounce = $2,340 / 300 ounces = -$7.80/ounce
Total Profit/Loss = -$7.80/ounce x 50 ounces/contract x 6 contracts = -$2,340
Converted to dollars, the loss is -$2,340 x $0.485 = -$1,135.80, which rounds up to -$1,140.

You Decided to Speculate in the Market and Sold Six