A copper fabricator orders 100,000 pounds of copper on January 15 to be delivere

Question

A copper fabricator orders 100,000 pounds of copper on January 15 to be delivered by May 15 to produce copper products for a customer. The fabricator will pay the market price on May 15 for the copper. On January 15, the price of copper is 340 cents per pound and the copper futures price for delivery on May 15 is 320 cents per pound. He takes a long position on 4 futures contracts from CME to purchase a total of 100,000 pounds of copper on May 15. What is the result of his position if the spot price on May 15 is 325 cents per pound? 305 cents per pound?

Explanation / Answer

Long Futures will result in profit if future price increases and loss if future price decreases

If spot is 325: profit=(325-320)*100000=500000

If spot is 305: loss=(320-305)*100000=1500000 loss

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