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Jenny a trader speculate that CPO spot and future price will decrease due to the poor demand in these few months
Jenny a trader speculate that CPO spot and future price will decrease due to the poor demand in these few months. She would like to take this opportunity to profit from her expectation. Currently the 3-month CPO futures with 90 days maturity are quoted at RM 2822 per ton.
(i) Outline Jenny’s strategy. (2 marks)
(ii) Illustrate Jenny’s return if the market price for CPO increase by 10% and decrease by 10%.
Expert Solution
Current Rate of futures = RM 2822 Per Ton.
(i) The Jenny expects the price to decline in the future so he will take short position in futures to get profit
(ii)
If the Market Price Raised by 10%,
New Market Price = 2822*(1+10%) = RM 3104.2
Jenny's profit or loss = 2822-3104.2 = -RM 282.2
Loss = 282.2
If the Market Price decrease by 10%,
New Market Price = 2822*(1-10%) = RM 2539.8
Jenny's profit or loss = 2822-2539.8 = RM 282.2
Profit = 282.2
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