To keep things simple, assume that all prices are continuous and that any size o

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Question

To keep things simple, assume that all prices are continuous and that any size order may be filled if an action (trigger) price is hit.

a) The current price per ounce for a gold futures contract is $400. You believe if the price moves up by $10 that this contract would be fundamentally overpriced. What order would you place with your broker now to try to trade on this belief?

b) The current price per ounce for a gold futures contract is $400. You believe if the price moves down by $10 that this contract will be fundamentally underpriced. What order would you place with your broker now to trade on this belief?

c) The current price for a gold futures contract is $400. You believe if the price moves up by $10 that it will be in an upward trend. What order would you place with your broker now to try to trade on this momentum movement belief?

d) The current price per ounce for a gold futures contract is $400. You believe if the price moves down by $10 that it will be in a downward trend. What order would you place with your broker now to try to trade on this momentum movement belief?

Explanation / Answer

a. If the futures are fundamentally overpriced then it will result in postive results if the futures are - Sell with $410 limit - because the futures is going to fall and we can counterbuy later at the low price

b. If the futures are fundamentally Underpriced then it will result in postive results if the futures are - buy with $390 limit - because the futures is going to rise and we can countersell later at the high price

c. If the futures are having upward trend then it will result in postive results if the futures are - Buy with $410 Stop - because the futures is going to rise and we can countersell later at the high price

d. If the futures are having Downward trend then it will result in postive results if the futures are - Sell with $390 Stop -- because the futures is going to fall and we can counterbuy later at the low price

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To keep the calculations fairly simple, but still reasonable, we shall model a h

To keep things simple, assume that all prices are continuous and that any size o

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To keep things simple, assume that all prices are continuous and that any size o

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