You have become fascinated by the opportunities represented by the futures market and decide to try your luck. Your broker tells you that the exchange requires an initial margin of 10 percent to open your account and you decide to sell one heating oil contract. This contract is

traded on the New York Mercantile Exchange and is for 42,000 gallons for December delivery. The price on the day you get into the market is $0.50 per gallon.

a. The National Wheather Service comes out with a forecast for a much colder than normal winter and the price on heating oil contracts rises to $0.515 per gallon. What effect does this have upon your position?

b. Subsequently, authorities and suppliers announce that heating oil suppliers are more than adequate to meet demand and the price of heating oil for future delivery falls to $0.48 per gallon. At this point you decide to close out your position . What is your net profit or loss on this venture in the futures market?