Hot answers tagged

89

Sure you can make money from this. Just get paid to take barrels of crude oil from a producer, take them home, and sell them to someone once the price increases. Problem is: Do you know the laws and regulations for transporting and storing crude oil? Would an oil producer just pay you, an individual, to haul off crude oil in their pickup? I doubt it. They ...


41

A futures contract is legally enforceable just like any other contract so the entity at the other end of the contract will have every right to sue you, extract fair recourse per the contract, and quite likely damages as well. In addition, you will very likely never be able to trade again on that exchange as your credit/performance risk would be deemed too ...


39

You don't consume enough of any one good to make hedging with futures economical. I'll present an alternate method - you hedge against risk in household expenses by setting a budget and sticking to it. You may not be able to fully control the cost of toothpaste, but you can set an overall budget that includes some discretionary items, and adjust if prices ...


37

They are not selling stocks. They are selling OJ futures contracts. Selling a futures contract at 142 gives the buyer the right to buy a fixed number of pounds of orange juice concentrate ("OJ") on a future date at 142 cents per pound. The seller has an obligation to supply that fixed number of pounds of OJ to the buyer on the future date for 142 cents per ...


31

The way to make money off of this would be to buy the futures contracts that are negative then hope that it goes back positive (or at least less negative) before they expire tomorrow. There's no practical way for a retail investor to take delivery of the oil, so the only option is to sell the contract before it expires.


30

There is nothing really unique to oil here. There are many other things which have a "negative price", and they have it always, not just temporarily like in the case of oil. Waste (especially dangerous chemical or nuclear waste) is one of the most obvious examples. People will literally pay a lot of money (much more money than the current negative oil price) ...


24

Hedging - You have an investment and are worried that the price might drop in the near future. You don't want to sell as this will realise a capital gain for which you may have to pay capital gains tax. So instead you make an investment in another instrument (sometimes called insurance) to offset falls in your investment. An example may be that you own ...


17

The contract specifies the delivery, generally it is for the buyer to arrange for transport to his location. If the buyer doesn't pick up from the location, he is hit with warehouse charges and the goods are auctioned. The buyer has to make up for the extra payment enforced by the broker... So it's not 2% loss, it can be more. On large contract broker would ...


15

The price for physical barrels filled with crude oil isn't actually negative right now in most regions of the world. If you need a barrel of oil for your petroleum refinery, then you will at least have to pay for someone to deliver it to you. What's negative is the price for futures contacts for oil. What's a futures contract on a natural resource, you ...


15

In the US, options (other than options on futures) are securities (like stocks), are regulated by the Securities and Exchange Commission (SEC), and can be traded in a normal brokerage account. Futures (even those on financial indexes) are commodities, are regulated by the Commodity Futures Trading Commission (CFTC), and require an account authorized for ...


12

A million barrels of oil would be a high end tanker, and second hand prices seem to be about $60 to $100 million dollars, so there is a bit of a hole in the budget before you start thinking about running costs. Then there is the issue of finding a suitable deepwater port in Oklahoma. Also, there is the cash flow problem. You need to have the cash to get the ...


12

These are just two products and not really an 'either-or' comparison; a little bit of apples and oranges. Still, there is some merit in looking at each product in the terms you've raised. Options [These securities give one person the 'option' to buy or sell an underlying security at a specific price, for a specific period of time. If I buy an AAPL call ...


11

One explanation from https://www.quora.com/In-futures-contracts-each-month-is-represented-by-a-letter-code-This-is-done-alphabetically-but-why-does-it-start-in-F-for-January-and-why-are-some-letters-skipped: exclude letters (A, B, C, D, E, I, L, O, P, R, S, T, W, Y) that could potentially be confused with numbers (B/8, I/1, O/0, S/5, T/7), assigned ...


11

Some futures markets are priced using a fractional pricing rather than decimal pricing. The example you've mentioned, Soybeans, is priced in cents per bushel, and the "tick size" (the minimum amount the price can move) is 2/8ths of a cent. So, 990-4 means 990 and 4/8ths of a cent. Also, it's not just some commodities priced this way - some interest rate ...


11

The largest personal cost you have is probably housing - and you can hedge the risk of real estate fluctuations without use of financial instruments. ie: you can buy your home. You might not consider this 'using the financial markets', but if your goal is actual just 'a stable cost of living' as you say, then this can help with that. Of course, it adds on ...


10

In equilibrium, there is no money to be made on the large spreads that is not related to the risk of trading. When multiple traders begin to believe there is money to be made, competition between them can quickly lower the spread to a level where the profits are only compensating for the risk of trading. Let's see how this works with your example. Trades ...


10

There are many ways of investing either directly or indirectly in oil: There are commodities brokers that will sell you oil by the barrel and store it for you but the minimum lot size is likely to be large and storage costs may destroy any gains that you make. In the short run you can trade in oil CFDs (contracts for difference) but these are more ...


10

Here's a good link that can answer your question: How to take delivery of a futures contract The relevant part states: Prior to delivery day, they inform customers who have open long positions that they must either close out the position or prepare to take delivery and pay the full value of the underlying contract. By the same token traders with short ...


9

You're missing the cost-of-carry aspect: The cost of carry or carrying charge is the cost of storing a physical commodity, such as grain or metals, over a period of time. The carrying charge includes insurance, storage and interest on the invested funds as well as other incidental costs. In interest rate futures markets, it refers to the differential ...


9

Not all futures contracts are deliverable. Some futures are specified as cash settlement only. In the case of deliverable contracts, part of the specification of a futures contract will be the delivery locations. As per my answer to your previous question, please see the CME Rulebook for details of delivery points for the deliverable futures contracts ...


9

Buying (or selling) a futures contract means that you are entering into a contractual agreement to buy (or sell) the contracted commodity or financial instrument in the contracted amount (the contract size) at the price you have bought (or sold) the contract on the contract expire date (maturity date). It is important to understand that futures contracts ...


9

In theory (but not practical in reality), you could hedge each of those expenses with various inflation swaps, futures, and other OTC products. Housing costs can be hedged by exposing to REITs returns through LEAP Call options Utility costs can be hedged by exposure to natural gas futures and call options on utility companies. Gas can be hedged using an oil ...


8

If an exchange facilitates the trading of futures contracts and nobody intends to take delivery of the product, nor do they own it so they can deliver it, then how are the contracts issued? Say I want to buy a future contract that allows me to buy coffee at a given price in December 2013. Technically, this contract allows me to buy 37,500 pounds of coffee ...


8

First, the usual caveat applies: consult a tax professional with experience in these matters. That being said, the term you're looking for is a Section 1256 contract. The 60/40 rule applies to any contract that falls under this designation, which includes Regulated futures contracts Foreign currency contracts Nonequity options Dealer equity options Dealer ...


8

Free WTI oil is available if the buyer has oil storage. Quantities available are in increments of 500 barrels. But the sale ends tomorrow. Now stored oil has significant value.


7

The difference is in the interrelation between the varied investments you make. Hedging is about specifically offsetting a possible loss in an investment by making another related investment that will increase in value for the same reasons that the original investment would lose value. Gold, for instance, is often regarded as the ultimate hedge. Its value ...


7

I'm not entirely sure about some of the details in your question, since I think you meant to use $10,000 as the value of the futures contract and $3 as the value of the underlying stock. Those numbers would make more sense. That being said, I can give you a simple example of how to calculate the profit and loss from a leveraged futures contract. For the ...


7

In order for a commodity to be offered as a future, the exact specifications must be specified by the exchange. This includes not only the particular grade, strain, etc (depending on what we are talking about) but also the exact delivery location (otherwise transportation costs is an issue as you noticed). Once there is a standardized contract, the ...


7

You didn't win in case B. Borrowing shares and then selling them is known as "selling short". You received $2000 when you sold short 100 shares at $20. You spent $1000 to buy them back at $10, so you come out $1000 ahead on that deal. But at the same time, the 100 shares you already owned have declined in value from $20 to $10, so you are down $1000 on ...


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