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To: skinowski who wrote (256226)	6/30/2008 3:35:56 PM
From: Bridge Player	Respond to of 793887

How do I keep my $10 profit when I now own oil that is worth $120 in the cash market, for which I paid $150 including storage costs? What profit? Edit. I see your point, that I still have the 10 bucks in my pocket, so that should represent profit. Also, it would seem that I also still have a barrel of oil that I own. If cash market is 120, and I now sell the oil to someone else for 120, shouldn't I actually make a total of $130 in profit? Something is wrong here, that I don't understand. Not surprising. Further edit. I see at least part of the problem Obviously, nobody paid me $160 as a pure spec, and he is now out the full $160 as a total loss. I'm not sure just what he would have paid me for the contract, but with cash at 140, he sure wouldn't have paid me a full 160. I'm so screwed up I think I'll just retire and take a nap <g>.

To: skinowski who wrote (256226)	6/30/2008 3:40:37 PM
From: Joe Btfsplk	Respond to of 793887

Message 24718470

To: skinowski who wrote (256226)	6/30/2008 3:47:22 PM
From: skinowski	Read Replies (2) \| Respond to of 793887

This hypothetical example started with someone selling a 6 months out contract for $160, and "hedging" the short exposure by buying spot oil at $140. Even if 6 months later the spot price is... 100, you already received for it $160. That's why this example was meant to illustrate the fact that prices of futures are "anchored" to the spot price, and the idea of hoarding for the purpose of hedging would not work. Ergo - the notion that futures "investors" bid up spot prices to any meaningful extent is a chimera.