A
akashgoy
Member
Hi,
This is given on pg 27, chapter 11. Can anyone please explain me both the cases with a numerical example .
Thus an investor that knows she is due to sell an asset at a particular time can hedge by taking a short futures position . If the price of the asset goes down , the investor does not fare well on the sale of the asset, but makes a gain on the short fixtures position.
If the price of the asset goes up, the investor gains from the sale of the asset but takes a loss on the futures position .
( For e.g. : future price of asset 110, asset original price 100 . What happens if asset Price goes 80 or 120)
Note:For hedging shouldn't the future position be long ( opposite) as on one hand he is selling an asset?
This is given on pg 27, chapter 11. Can anyone please explain me both the cases with a numerical example .
Thus an investor that knows she is due to sell an asset at a particular time can hedge by taking a short futures position . If the price of the asset goes down , the investor does not fare well on the sale of the asset, but makes a gain on the short fixtures position.
If the price of the asset goes up, the investor gains from the sale of the asset but takes a loss on the futures position .
( For e.g. : future price of asset 110, asset original price 100 . What happens if asset Price goes 80 or 120)
Note:For hedging shouldn't the future position be long ( opposite) as on one hand he is selling an asset?