In Reading 42 of CFAI book in section “Market Participant” the book says
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I understand cash and carry as simple long in spot market and short in future market i.e. you borrow $10 now and buy an asset, sell the very same asset in future market for say $15. If cost of loan is say $2 then you still end up with profit of $3. If my understanding is correct then isn’t bold text above saying opposite or something else.
A) I mean how come short future position is unconditonal commitment to purchase when investor has already purchased in spot market. Short position in future is commitment to sell actually instead of buying. RIght or am I confusing myself?
B) Also there is no profit from spot trade alone. The profit is from combination of spot and future trade net of financing cost. Right?
If you have shorted an airline fuel futures contract, next month, when the contract matures, you will have to deliver the fuel. Where will you find this fuel?
You may not understand it as well as you think. You don’t lend $10 today; you _ borrow _ $10 today to buy the asset.
The bolded text doesn’t say that a short position _ is _ an unconditional commitment to purchase; it says that a short position _ implies _ an unconditional commitment to purchase. That commitment is made _ by your counterparty _, not by you.