Suppose you notice that the April gold futures price is $1,518, while that for December is $1,535 (all prices are per ounce). Historically, this spread has been around $10. Explain the workings of a...

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Suppose you notice that the April gold futures price is $1,518, while that for December is $1,535 (all prices are per ounce). Historically, this spread has been around $10. Explain the workings of a spread strategy that you may set up in the hope that the spread would revert to its historical level.

Answered Same DayDec 26, 2021

Answer To: Suppose you notice that the April gold futures price is $1,518, while that for December is $1,535...

Robert answered on Dec 26 2021

120 Votes

1)The spread now=$1,535-$1,518=$17
Since the spread now=17>10, the historical spread therefore
we should enter the positions looking at the fact that the spread
should again narrow down to 10.Therefore we can say that the
December golf futures are overpriced relative to the April gold
futures...

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Suppose you notice that the April gold futures price is $1,518, while that for December is $1,535 (all prices are per ounce). Historically, this spread has been around $10. Explain the workings of a...

Answer To: Suppose you notice that the April gold futures price is $1,518, while that for December is $1,535...

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