You take a long position in a futures contract of one maturity and a short position in a contract of a different maturity, both on the same commodity. This is called a ________.
A) cross-hedge
B) reversing trade
C) spread position
D) straddle

Question

Quizplus · Accepted Answer

This is called a spread position, where the investor takes a long position in a futures contract of one maturity and a short position in a contract of a different maturity, both on the same commodity. This is done to take advantage of differences in the prices of the two contracts. A cross-hedge involves hedging against a risk in a different market, a reversing trade involves buying and selling the same futures contract simultaneously, and a straddle involves taking both a long and short position on the same futures contract at the same price.

You Take a Long Position in a Futures Contract of One