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Short and Long Positions - Research Paper Example

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Short and Long Positions

This is due to firms having incentives to predict their productions by use of the forward contracts. Short and long positions Forwards and options are contracts for sale and purchase of commodities between two parties: the sellers and the buyer. The party agreeing to the sale or possible selling of the commodity in the future at that price is the seller or the short. The other party that is agreeing to purchase or possible purchase of the product in the future is the buyer or the long. To assume the short positions means to be assuming the position of the seller. The seller hopes that the price worth of the asset will rise over the stipulated time of exchange to more than the value set at the time of agreement for purchase. The assuming of the long positions means to be assuming the position of the buyer. The buyer hopes that the price worth of the commodity will fall over the stipulated time of exchange to less than the price valued at the period of agreement for sale. The contract in itself costs and limits nothing to enter to but it offers a view and privileged risk of the positions the shot and long hold (Keith, 1997: p. 14). ...
qual to the value price that the asset has appreciated over the agreed period. Such loss risk is an associated return for the long in the same contract they would have gained an asset at a price agreed upon before its appreciation is lower than the valued price of the commodity at the time of exchange of ownership. Also in case the value of the commodity were

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to depreciate over the agreed upon period the long incurs the loss of the depreciated value of the commodity. This is because they would pay according to the agreed upon price before depreciation and, hence, the loss of value by the asset incurred by them (John 2000: p. 34). In the forward contract, there is a substantial possibility of the creation of a credit risk within the contract. In the forwards, there are no daily true-ups being conducted on the price of the commodity. This depicts that the daily rise and change in the price values of the assets is accumulated to be met upon completion of time on the exchange date. This is risking that the short will fail to deliver the set upon asset, or the long will not be able to pay up to the agreed upon price on the delivery date. There is the possibility of unlimited profit potential by the short in the futures positions. The short in options stands to benefit in profit determined that the indicated futures prices increase. This is mainly caused by the fact that the price of the asset appreciated meaning that the margining updates are met by the buyer long to ensure equitable accomplishment of the contract. In the forward positions, however, the long stands to accrue unlimited profits in case of the rise in value of the commodity meaning that the payments made would be based on agreements made on

Summary

Short and long positions Name: Institution: Forwards and options According to Steven (2000: 2), forwards are mainly agreements made to sell or purchase a commodity at a certain period in the future for a specified price agreed on today by different parties. Options refer to the agreement between two or more parties who want to buy or sale a commodity at a certain future period at a price that determined today…
Author : xbechtelar
Short and Long Positions essay example
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