Which of the following is correct? More than one may apply. 1.You close out a lo

Question

Which of the following is correct? More than one may apply.

1.You close out a long future position by buying a short future.

2. The owner of a long future position has the right, but not the obligation to buy a product at a set time for a set price in the future.

3.The owner of a short future position has the obligation to sell a product for a set price at a set time in the future.

4. No money changes hands between the long and short side of a future contract when the contract is signed. unanswered

Explanation / Answer

1) You close out a long future position by buying a short future. Incorrect. Shorting means selling, so you cannot buy a short future.

2) The owner of a long future position has the right, but not the obligation to buy a product at a set time for a set price in the future. Incorrect. In case of futures, their is always a obligation to either buy or sell the product at a set time for a set price in the future.

3) The owner of a short future position has the obligation to sell a product for a set price at a set time in the future. Correct.

4) No money changes hands between the long and short side of a future contract when the contract is signed. Correct. Money changes hands only at time of maturity.

So, Statements 3 and 4 are correct.

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