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Futures US Futures Profit & Loss Calculation

Example: Investor expects that the demand of crude oil will increase sharply in the near future, hence he buys 2 crude oil futures contracts at US\$ 51.00. When the price of crude oil rises to US\$55.50. Investor can sell the contracts and take the profit.

 Buying Price : US\$ 51.00 Selling Price : US\$ 55.50 No. of Contracts : 2 Lots ( 1,000 Barrels per contract) Minimum Fluctuation : 0.01 = US\$ 10.00

Price Difference x 1,000 Barrels x No. of Contracts = Profit/Loss

(US\$55.50 – US\$51.00) x 1,000 Barrels x 2 Lots = US\$9,000

The above P&L calculation does not include any commission and handling charges.

Profit & Loss Calculation for RMB currency futures

Investor believes China rate hike will lead to the appreciation of the Renminbi and it will rise, so he sells 2 lots of September USD/CNH futures contracts (selling represent selling Dollar and buying Renminbi) at 6.3509. When USD/CNH drops to 6.3409, he decides to take profit by buying (buying represent buying Dollar and selling Renminbi) back 2 lots USD/CNH futures contracts to liquidate the positions.*(USD/CNH drop represents appreciation of Renminbi)

USD/CNH Futures

 Sell Price 6.3509 Buy (Liquidation) Price 6.3409 No. of Contracts 2 lots Contract Size USD100,000 Minimum Fluctuation 0.0001=RMB \$10.00 Profit = (Sell Price – Buy Price) x Contract Size x No. of contracts  =(6.3509-6.3409)x100,000x2 =0.01x100,000x2  =RMB 2,000  OR  Profit = Basis Point Difference x Minimum Fluctuation Value x No. of contracts  =100x10x2  =RMB 2,000 Physical delivery example: Continued to the example above, if the investor chooses to hold the contracts until maturity for physical delivery and the final settlement price is 6.3409. As the investor is the seller of the USD/CNH futures contracts, he is obligated to pay USD 200,000 (100,000x2) at settlement day for delivery and the buyer of the contracts is obligated to pay RMB 1,268,180 (100,000x6.3409x2) for settlement.

* The above P&L calculation does not include any commission and handling charges.

Hong Kong Hang Seng Index Futures Trading Strategy and Profit and Loss Diagram

1. Bull Market

Buy a Hang Seng Index Futures Contract at 24500 points, when Hang Seng Index Futures raise to 24600 points, investors can sell a Futures Contract and take 100 points profit.

Profit = (24600 points – 24500 points) X 1 contract X \$50 = \$5,000 2. Bear Market

Sell 2 Hang Seng Index Futures Contracts at 25000 points, when Heng Seng Index Futures fall to 24800 points, investors can buy 2 Futures Contracts and take 200 points profit per contract.

Profit = (25000 points – 24800 points) X 2 contracts X \$50 = \$20,000 * The above P&L calculation does not include any commission and handling charges.

Hang Seng Index Option Trading Strategy and Profit and Loss Diagram

Bull Market Strategy :

Example : Buy a Hang Seng Index 24200 October Call Option at 200 points. If Hang Seng Index rises to 24700 on maturity day, then investor can exercise the contract and profit from the difference between the Intrinsic Value and the Premium, which is 300 points. In contrast, if the Index falls to or below 24200 on maturity day, then investor will not exercise the contract and lose 200 Premium points.

 Hang Seng Index at Maturity Paid Premium 24200 Call Option Intrinsic Value Return Return Profit/Loss 24700 200 500 300 \$15,000 24600 200 400 200 \$10,000 24500 200 300 100 \$5,000 24400 200 200 0 \$0 24200 200 0 -200 -\$10,000 24100 200 0 -200 -\$10,000 24000 200 0 -200 -\$10,000

Intrinsic Value = Index at Maturity – Exercise Price
*If the difference between Index at Maturity and Exersice Price is negative, then Intrinsic Value will be equal to zero, since Intrinsic Value cannot be a negative number.
Profit/Loss = (Intrinsic Value – Premium) x No. of Contracts x Value of per Index Point
Break-even point = Call Option Exercise Price + Premium 2. Sell Put Option

 Expectation: Bullish Cost: Margin Profit: Premium Loss: Infinite

Example : Sell a Hang Seng Index 24800 November Put Option at 400 points. If Hang Seng Index falls to or below 24800 on maturity day, then investor will be required to pay the Intrinsic Value of the Put Option and receive 400 Premium points. In contrast, if the Index rises above 24800, then the contract will not be exercised and the investor will profit from 400 Premium points.

 Hang Seng Index at Maturity Received Premium 24800 Put Option Intrinsic Value Return Profit/Loss 25200 400 0 400 \$20,000 25000 400 0 400 \$20,000 24800 400 0 400 \$20,000 24600 400 200 200 \$10,000 24400 400 400 0 \$0 24200 400 600 -200 -\$10,000 24000 400 800 -400 -\$20,000 23800 400 1000 -600 -\$30,000

Intrinsic Value = Exercise Price – Index at Maturity
*If the difference between Index at Maturity and Exersice Price is negative, then Intrinsic Value will be equal to zero, since Intrinsic Value cannot be a negative number.
Profit/Loss = (Premium – Intrinsic Value ) x No. of Contracts x Value of per Index Point
Break-even point = Put Option Exercise Price – Premium Bear Market Strategy:

Example : Buy a Hang Seng Index 24200 September Put Option at 100 points. If Hang Seng Index falls to 23700 on maturity day, then investor can exercise the contract and profit from the difference between the Intrinsic Value and the Premium, which is 400 points. In contrast, if the Index rises above 24200 on maturity day, then investor will not exercise the contract and lose 100 Premium points.

 Hang Seng Index at Maturity Paid Premium 24200 Put Option Intrinsic Value Return Profit/Loss 24300 100 0 -100 -\$5,000 24200 100 0 -100 -\$5,000 24100 100 100 0 \$0 24000 100 200 100 \$5,000 23900 100 300 200 \$10,000 23800 100 400 300 \$15,000 23700 100 500 400 \$20,000

Intrinsic Value = Exercise Price – Index at Maturity
*If the difference between Index at Maturity and Exersice Price is negative, then Intrinsic Value will be equal to zero, since Intrinsic Value cannot be a negative number.
Profit/Loss = (Intrinsic Value – Premium) x No. of Contracts x Value of per Index Point
Break-even point = Put Option Exercise Price – Premium 4. Sell Call Option

 Expectation: Bearish Cost: Margin Profit: Premium Loss: Infinite

Example : Sell a Hang Seng Index 24400 September Call Option at 200 points. If Hang Seng Index rises above 24400 on maturity day, then investor will be required to pay the Intrinsic Value of the Call Option and receive 200 Premium Points. In contrast, if the Index falls to or below 24400, then the contract will not be exercised and the investor will profit from 200 Premium points

 Hang Seng Index at Maturity Received Premium 24400 Call Option Intrinsic Value Return Profit/Loss 24900 200 500 -300 -\$15,000 24800 200 400 -200 -\$10,000 24700 200 300 -100 -\$5,000 24600 200 200 0 \$0 24500 200 100 100 \$5,000 24400 200 0 200 \$10,000 24300 200 0 200 \$10,000

Intrinsic Value = Index at Maturity – Exercise Price
*If the difference between Index at Maturity and Exersice Price is negative, then Intrinsic Value will be equal to zero, since Intrinsic Value cannot be a negative number.
Profit/Loss = (Premium – Intrinsic Value) x No. of Contract x Value of per Index Point
Break-even point = Call Option Exercise Price + Premium 