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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.


Crude Oil Futures Trading

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 :


1. Buy Call Option

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

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:

 

3. Buy Put Option

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

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