If an individual who has entered a futures contract to buy one ounce of gold for $553 decides to reverse their position when the futures price is $555,they will:
A)effectively now have two positions with the exchange.
B)will still have one contract with the exchange.
C)make a profit of $2.
D)make a loss of $2.

Question

Quizplus · Accepted Answer

If the individual reverses their position, it means they will sell the contract back to the market at the current price of $555. Since they initially bought the contract at $553, they will make a profit of $2. They will still hold only one contract with the exchange, so option B is incorrect. Option A is incorrect because reversing the position means closing the existing position, not creating a new one. Option D is incorrect because the individual will make a profit, not a loss, as explained above. Therefore, the correct answer is C.

If an Individual Who Has Entered a Futures Contract to Buy