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Commodity Trading Lesson Index
 
 

Example for Lesson 3:
Go Long or Short?

In this exercise, you will see how profits are made if one is "long" a market and how profits are made when one is "short" a market. For the purpose of this exercise we are using crude oil. The prices below are not actual prices, but are only hypothetical examples to show how profits are made from being "long" or "short" a futures position.

Suppose it is January 2010.

Assume you can buy crude oil for delivery in December of 2010.
Assume you can sell crude oil for delivery in December of 2010.
The choice is up to you.
Assume the price of December 2010 crude oil has been trading in the following ranges during the first week of January, 2010.

.

Higest Price

Lowest Price

Closing Price

Monday

25.50

24.50

25.00

Tuesday

25.25

24.75

24.75

Wednesday

25.50

24.45

24.50

Thursday

26.00

24.50

25.50

Friday

25.75

24.75

25.00

When the markets open on Monday you want to make a decision with regard to an investment in crude oil.

Select one of these two options:

Crude oil is priced at $25 for December 2010 delivery.
You want to bet that it will go to $30 before it declines to $20.

You want to go long crude oil.

You want to bet it is going to go up - you go (long).

Crude Oil is priced at $25 for December 2010 delivery.
You want to bet it will go to $20 before it rises to $30.

You want to go short crude oil.

You want to bet it is going to go down - you go (short).

 

Always remember that stock, options, and futures trading may involve substantial risks and that past performance is no guarantee of future performance.