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Futures

Futures. Getting In & Getting Out Cory Hill. Agenda. Forward Contracts Futures Contracts Example. Forward Contracts. Define: Underlying asset Delivery (date and place) Price No Money Exchanged Today Potential Problems? Examples? Hotels – cover spot price vs. futures price.

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Futures

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  1. Futures Getting In & Getting Out Cory Hill

  2. Agenda • Forward Contracts • Futures Contracts • Example

  3. Forward Contracts • Define: • Underlying asset • Delivery (date and place) • Price • No Money Exchanged Today • Potential Problems? • Examples? • Hotels – cover spot price vs. futures price

  4. Forward Contracts Futures Contracts

  5. Futures Contracts • How are Future Contracts different? • Organized Exchange • CME • Standardized • Pork Bellies Contract Specs • Require Margin • Margin Requirements • Marked-to-Market • Why futures vs. owning the underlying asset?

  6. Pork Bellies Example • Leverage • Value of Contract: $48,020 • $1.2005/lbs x 40,000 lbs/contract • Contract Margin: $2,025 • Set by CME Group • Ratio: ~ 1:23

  7. Pork Bellies Example Cont’d • Excel File

  8. Forget to Unwind Position • What happens when if you do not close your position before the delivery date?

  9. Questions?

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