Question
Natural gas (NG) futures contracts trade on the CME. Each NG contract calls for the delivery of 10,000 million British thermal units (mmbtu) of natural
Natural gas (NG) futures contracts trade on the CME. Each NG contract calls for the delivery of 10,000 million British thermal units (mmbtu) of natural gas to the Henry Hub, a pipeline junction in Louisiana. Prices on the NG futures contracts are quoted as U.S. dollars and cents per mmbtu. If the price is quoted as 8.30, that means 1 million British thermal units (1 mmbtu) costs $8.30. Typical daily volume for the NG contract is 60,000 contracts. In the summer of 2007, Brian Hunter of Amaranth Advisors, a hedge fund, lost $6.6 billion trading NG futures. Assume that Mr. Hunter took a long position in the October futures contract in July of 2007 at a price of 8.30 and offset that position in September at a price of 4.3. How many contracts did Mr. Hunter have in his long position in order to lose $6.6B when he reversed in September?
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