Reference no: EM13396560

Several illustrations have been provided explaining a long position and how it contrasts with a short position. College tuition has even been used as an example! Prepare at least one example of a long position and one example of a short position and back it up with explanations. How are these examples similar to or different than taking a long or short position on stocks? How do price expectations influence people's behavior? Evaluate the risk of your imagined short and long positions, using common sense ideas of risk.

A personal example that I have involving short and long positions is in agriculture. My family raises corn and soybeans, and we will often sell so many bushels in the winter or summer before we have actually harvested the crop. It is referred to as contract beans or contract corn. When the fall rolls around, we have pledged the elevator so much that we will sell at a certain price that was agreed upon months ago. In the long position, we have a guaranteed descent price if the market would crash. However, as we learned this year, the price could also sky rocket and you have already settled on a lower price. Also, it is a bit of a gamble for the farmer because a hail storm or drought could wipe out your crops, and you would be unable to fulfill your end of the contract.