The futures market for commodity A is trading $5.00 for October delivery. The forward market for A in location y for October is trading at - $.50 the October futures. 

a) With the cost of moving the commodity, from market z to market y being $.20 & adding profit of $.10, what is the basis for location z for trade to take place between market z and y for delivery in October? (i.e., commodity flow from z to y) 

b) Assume you put the trade on in a).   

On October 20, when our contract becomes deliverable, the basis for location r is trading October futures - $.10, location y is trading October futures - $.80, and basis for location z is October futures- $.70. 

The cost of moving A from location y to r is $.50 plus $.10 profit. Futures price for A is still $5.00.

 

-What trade, or trades, would you put on to improve your profit?

Transport can be sold back in the market for $.05 less than original cost   

-How much would your trading profit be (over and above normal profit for moving A from one market to another)?  

Answer rating: 100% (QA)

SOLUTION a The basis for location z can be calculated as Basis for location z Forward price for Octo... View the full answer