Question

You have 50,000 pounds of cotton in storage. You don't want to sell the cotton today as you believe the price of cotton will be higher six months from now than what the markets currently predict. However, you also realize that the price could decline. Which one of the following would hedge your risk of owning the cotton for the next few months?

Answer 1

(b) short futures position

Step-by-step explanation:

The short futures position is an unlimited profit, unlimited risk position that can be entered by the futures speculator to profit from a fall in the price of the underlying.

The short futures position is also used by a producer to lock in a price of a commodity that he is going to sell in the future.