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I need help with calculating the profit I'd make if I was short the Jun '23 Eurodollar futures contract @99.275. I believe that it'll move to 98.75, which should net me a profit of 0.525*2500=1312.5. However, I've been reading up on these contracts and was wondering when I should account for days to expiration into my calculations, or if that would only be if I were hedging a loan with the Eurodollar futures.

Also, if I were long the contract, how would I make a profit if the LIBOR rate stays the same? How is the profit realized? Does the futures contract increase in value before it's rolled into the next futures month, or is the LIBOR rate already priced into the futures contract, and the contract is just used for locking in LIBOR rates?

Thank you!

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For the first question, your calculation is correct and there is no need to factor in the days to expiration.

For the second question. If you were long the Jun 23 contract at 99.275, you want to know what happens if spot Libor (which is setting at around 0.20% recently ) does not move between now and June ‘23? In that case the contract will eventually mature at 99.80, so you will make money. The money will hit your account every day that the contract increases in price, by $25 times the move in ticks. Was that the correct interpretation of the question?

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  • $\begingroup$ When would the days to expiration be a factor? Am I right that it's only a factor when you're hedging the LIBOR portion of a loan? $\endgroup$
    – Jay C
    Jul 6 at 3:28
  • $\begingroup$ If you have a loan, you need to hedge each Libor setting in the loan with the appropriate Eurodollar contract. So for example a loan maturing in Dec 24 with quarterly interest payments would need to be hedged with a strip of quarterly Eurodollar contracts from the front contract to Sep24 contract (sep 24 would be the last Libor setting date in the loan). $\endgroup$
    – dm63
    Jul 6 at 3:29
  • $\begingroup$ 99.80 = 100 - 0.20. This is the expiration price of Libor sets at 0.2 upon expiration. $\endgroup$
    – dm63
    Jul 6 at 3:31
  • $\begingroup$ Thank you for the help! $\endgroup$
    – Jay C
    Jul 6 at 3:32

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