 A. The basis is always the nearfuture price minus the distantfuture price; it narrows as it gets closer to zero it narrows, and widens as it gets farther from zero.
 B. Interest rates and futures prices move inversely. Selling the near future and buying the distant future suggests that the investor is speculating that contract prices will move down. Considering that only onefourth of the position is hedged, this is probably a strongly held belief.
 A. Uncovered position: $93,750 (50 bps x $25 x 75 contracts). Hedged position is also positive because the speculator sold near future and bought distant future as the basis narrowed: $6,250 (10 bps x $25 x 25 contracts).
 D. Gross margin is $100,000, per 3A. The amount invested is $966.65 ($96.6650 x 100 contracts x 10%) plus $241.68 ($96.6700 x 25 contracts x 10%) plus $100 ($50 x 2 trades)
 C. A is false and the others are not necessarily true.
 B. Pyramiding involves the incremental addition of futures positions in decreasing amounts in a rising market, not a falling one.
 B. 10093.75 ($9,375/100) = 6.25%
Option Theory
Related Articles

Investing
Calculating Future Value
Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today. 
Financial Advisor
Example of Applying Modern Portfolio Theory (MPS)
Modern Portfolio Theory: brush up on key mathematical framework used in investment portfolio construction. 
Investing
How to Trade Futures Contracts
Futures is short for Futures Contracts, which are contracts between a buyer and seller of an asset who agree to exchange goods and money at a future date, but at a price and quantity determined ... 
Investing
What Does Global X Purchase Mean for JP Morgan?
Discover what JPMorgan Chase gets for its minority interest acquisition of ETF provider Global X, and learn about what it means for the company's ETF business. 
Investing
Investing $100 a Month in Stocks for 20 Years
Learn how a monthly investment of just $100 can help build a future nest egg using properly diversified stocks or stock mutual funds. 
Investing
Introduction To Trading In Oil Futures
An introduction to oil futures, how the market arrives at oil futures prices, what futures prices mean, and how investors can exploit them. 
Managing Wealth
Dissecting the Simple Interest Formula
Simple interest ignores the effect of compounding: it's only calculated on the principal amount. This makes it easier to calculate than compound interest. 
Investing
Trading Gold And Silver Futures Contracts
If you are a hedger or a speculator, gold and silver futures contracts offer a world of profitmaking opportunities. 
Investing
Fueling Futures In The Energy Market
The energy market influences every aspect of our lives, and these four options are its driving force.