# Tricky futures question

A futures trader goes long one futures contract at \$450. The settlement price 1 day before expiration is \$500. On expiration day, the future is trading at \$505. The least likely way the futures trader will lock in her profits on expiration is: A) take delivery of the underlying asset and pay \$500 to the short B) close out the futures position by selling the futures contract at \$505 C) take delivery of the underlying asset and pay the expiration settlement price to the short D) cash settle the futures and recieve the difference between \$500 and the expiration settlement price Answer: To lock profits, take delivery and pay short the settlement price of the previous day, not the expiration day. I understand the fact that you pay the previous day’s price, not the expiration day price. But I don’t understand why the long is making a payment. If the contract was locked in at \$450, doesn’t the long recieve a payment (in the amount of \$50, if cash settlement)?

Yes, you are correct. But you’re looking for the least likely (false) answer.

my brain is so fried, i’m reading the answer and still don’t know the answer. which one is correct? A?

bpdulog Wrote: ------------------------------------------------------- > Yes, you are correct. But you’re looking for the > least likely (false) answer. That would mean that the others (A,B,D) are true. I don’t see how they are. In A for example, it describes the long paying the short, when in fact the long won. If the long is taking delivery, he should be paying 450.

A is false. If you wanted to lock in your profits at expiration, why would you take delivery the day before? The kinda defeats the purpose.

C appears false as well because hes paying the short and using the expiration price