Futures and forwards Flashcards
1
Q
What are payoff diagrams
A
Pay off diagrams show the loss and gains of short/long positions as the price of the underlying asset changes.
2
Q
Describe the pay off diagram for long position at delivery
A
Long is concerned about future prices increasing.
As spot price of underlying asset increases (S) and is greater than future price (F), The long gains as they’ve locked in a cheaper price.
opposite is true for F>S
positive gradient
3
Q
Describe pay off diagram for short position in FF contract
A
The short is concerned with market prices decreasing.
if S>F then the short loses
if the S
