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The TAS contracts required them to buy at settlement price. They obviously did not want inventory so they sold an equal number of contracts. (Sell high, buy low

The TAS contracts required them to buy at settlement price. They obviously did not want inventory so they sold an equal number of contracts. (Sell high, buy low). That much is a routine short scenario. The unusual part of this scenario is that contracts were expiring (it required someone to take actual inventory) so prices at settlement went negative. So when they "bought" to cover their shorts at settlement they were paid to do so.

svpg 6y ago
Another question. Once the future expires they have to take in that oil physically. Did they do that and sell in the regular market?
- crazyideaman 6y ago
  No. They sold an equal number of future contracts so they were flat and did not need to take inventory. That part is a routine shorting scenario. The odd part of this is that market conditions caused demand to drop so far that sellers paid buyers to take the contracts (and inventory). So these guys were paid to honor their TAS contract but had already sold the inventory to others via the futures contracts.
  - xyzzyz 6y ago
    To put in a simpler terms, they didn’t have to take delivery, because they sold the oil earlier in the day to someone else. Since they didn’t have any oil at the time, they sold it “short”. Then, at the end of the day when they “bought” the oil at the negative prices, it was used to cover the contracts for the oil they sold earlier in the day.
    - eaenki 6y ago
      Please tell me if I’m correct: 1. Sell futures contract At $15 (bearish position) 2. Buy futures at TSA when it’s negative - an equal amount to the ones u sold- to cover the futures you initially sold
      - xyzzyz 6y ago
        Yup. When the price at the end of the day is negative, you get money both when you originally sell, and also when you later buy.
  - eaenki 6y ago
    Please tell me if I’m correct: 1. Sell futures contract At $15 (bearish position) 2. Buy futures at TSA when it’s negative - an equal amount to the ones u sold- to cover the futures you initially sold So basically they sold the contract earlier in the day for a higher price and then and covered their position at a much lower price. Assuming I’m correct: My question is, doesn’t this require margin? If so, how much? What was their initial cash position?

svpg 6y ago

Another question. Once the future expires they have to take in that oil physically. Did they do that and sell in the regular market?

crazyideaman 6y ago
No. They sold an equal number of future contracts so they were flat and did not need to take inventory. That part is a routine shorting scenario. The odd part of this is that market conditions caused demand to drop so far that sellers paid buyers to take the contracts (and inventory). So these guys were paid to honor their TAS contract but had already sold the inventory to others via the futures contracts.
- xyzzyz 6y ago
  To put in a simpler terms, they didn’t have to take delivery, because they sold the oil earlier in the day to someone else. Since they didn’t have any oil at the time, they sold it “short”. Then, at the end of the day when they “bought” the oil at the negative prices, it was used to cover the contracts for the oil they sold earlier in the day.
  - eaenki 6y ago
    Please tell me if I’m correct: 1. Sell futures contract At $15 (bearish position) 2. Buy futures at TSA when it’s negative - an equal amount to the ones u sold- to cover the futures you initially sold
    - xyzzyz 6y ago
      Yup. When the price at the end of the day is negative, you get money both when you originally sell, and also when you later buy.
- eaenki 6y ago
  Please tell me if I’m correct: 1. Sell futures contract At $15 (bearish position) 2. Buy futures at TSA when it’s negative - an equal amount to the ones u sold- to cover the futures you initially sold So basically they sold the contract earlier in the day for a higher price and then and covered their position at a much lower price. Assuming I’m correct: My question is, doesn’t this require margin? If so, how much? What was their initial cash position?