Short Futures Position
short futures
 Details
 Category: nonsynthetic futures and option strategies
 Published on Thursday, 18 February 2010 00:33
short futures position
the short futures position is an unlimited profit, unlimited risk position that can be entered by the futures speculator to profit from a fall in the price of the underlying.
the short futures position is also used by a producer to lock in a price of a commodity that he is going to sell in the future. see short hedge.
short futures position construction

sell 1 futures contract

to create a short futures position, the trader must have enough balance in his account to meet the initial margin requirement for each futures contract he wishes to sell.

unlimited profit potential
there is no maximum profit for the short futures position. the futures trader stands to profit as long as the underlying asset price goes down.the formula for calculating profit is given below:
 maximum profit = unlimited
 profit achieved when market price of futures < selling price of futures
 profit = (selling price of futures  market price of futures) x contract size
unlimited risk
heavy losses can occur for the short futures position if the underlying asset price rises dramatically.the formula for calculating loss is given below:
 maximum loss = unlimited
 loss occurs when market price of futures > selling price of futures
 loss = (market price of futures  selling price of futures) x contract size + commissions paid
breakeven point(s)
the underlier price at which breakeven is achieved for the short futures position position can be calculated using the following formula. breakeven point = selling price of futures contract
example
suppose june crude oil futures is trading at $40 and each futures contract covers 1000 barrels of crude oil. a futures trader enters a short futures position by selling 1 contract of june crude oil futures at $40 a barrel.scenario #1: june crude oil futures drops to $30
if june crude oil futures is trading at $30 on delivery date, then the short futures position will gain $10 per barrel. since the contract size for crude oil futures is 1000 barrels, the trader will net a profit of $10 x 1000 = $10000.scenario #2: june crude oil futures rises to $50
if june crude oil futures instead rallies to $50 on delivery date, then the short futures position will suffer a loss of $10 x 1000 barrel = $10000 in value.
daily marktomarket & margin requirement
the value of a short futures position is markedtomarket daily. gains are credited and losses are debited from the future trader's account at the end of each trading day.
if the losses result in margin account balance falling below the required maintenance level, a margin call will be issued by the broker to the futures trader to top up his or her account in order for the futures position to remain open.
Non Synthetic Positions

Long Call Butterfly

Long Futures Position

Short Futures Position

Long Call

Short Call

Bear Spread (call & put)

Bull Spread (call & put)

Long Put

Short Put

Long Straddle

Short Straddle

Long Strangle

Short Strangle

Call Ratio Spread

Put Ratio Spread

Call

Call Ratio Backspread

Put Ratio Backspread

Long Put Butterfly

Short Butterfly

Box Or Conversion/Reversal
Please be aware that trading futures and options involves substantial risk of loss and is not suitable for all investors.
Past performance is not necessarily indicative of future results.
A DIVISION OF FOURTH RIGHT COMMUNICATIONS, L.L.C.
Privacy Policy