question about forward contracts forward, contract, question

dreampak

When a contract expires how can you realize a gain/loss on the underlying asset when the contract price is fixed??

For example, if the price at expiration of an asset is $110 and the forward contract was initiated at $105, and you are short (meaning you will sell the asset at expiration) how is it that you have a a $5 dollar loss on the forward contract and a $10 gain on the asset (so a net $5 gain) when you do not get to realize the gain on the asset since you have to deliver it for $105?????

Please help. Thanks!

busterbluth

I forgot to add that the asset was purchased at $100.

ryanlb

From the long I see how the gain is in terms of opportunity costs. I suppose it is the same for the short. Hopefully I answered my own question......

maryli

forward contract loses -5 b/c I am short and I initiated the short at 105 but the price went up to 110 so I lose.

asset gains $10 b/c I bought it at $100 and it went to $110

Let me know if that helps