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For example, in Wool Distrib. Corp. v. Commissioner,
supra at 331, we discussed the relationship between the
price of the product that is the basis of the taxpayer's
business and the price of the commodity future as follows:
A dealer with stocks of a particular
commodity on hand runs the risk of loss should
the market price of the commodity fall. To
minimize that risk he will customarily enter a
futures market and sell the same or a related
commodity short in an amount equivalent to the
amount in inventory. In this way he reaches an
even or balanced position between actuals and
futures, so that any loss resulting from a
decline in the market price of the actuals will
be offset pro tanto by the gains derived from
closing out the futures at a commensurately lower
cost. G.C.M. 17322, supra [1936-2 C.B. 151].
However, such a balancing of gain and loss will
not be possible unless the market prices of the
actuals and the futures are so related that they
normally rise or fall together. If they do not,
then the futures will increase rather than
diminish the overall risk. For this reason
hedging presupposes an intimate price
relationship between the two. The actuals and
futures need not be in the same commodity so long
as their prices move in relation to each other.
Albert Kurtin, 26 T.C. 958. Nor must the futures
be in the exact amount of the actuals; the latter
may be covered entirely or only to the extent
protection is desired. Stewart Silk Corporation,
9 T.C. 174. But a larger amount of futures than
of actuals or an absence of price relationship
between the two will suggest that the futures
were acquired as an investment and not as a
hedge.
In this case, petitioner claims to have engaged in day
trading of commodity futures as a hedge against the loss of
value or income from his manuscript describing a system of
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