6
As indicated, from 1979 to 1982, Israel, Wolff, Stoller, and
other individuals were partners in Holly, which partnership
invested nominally in interest-bearing Government securities,
such as U.S. Treasury Bonds (T-Bonds) and Government National
Mortgage Association Bonds (GNMA’s) by way of unregulated
commodity forward contracts.
Holly utilized forward contracts to conduct an arbitrage
program involving the simultaneous purchase in one market and
sale in another market with the expectation of making a profit on
price differences in the different markets. Holly's program
involved the establishment of long positions in Government
securities and the simultaneous establishment of short positions
in different Government securities, with a difference in the
interest rates, or repurchase rates, on the two positions that
was calculated to yield a nominal net profit to Holly when the
positions were liquidated.
In this instance, a long position represents a contract to
purchase a Government security in the future, and a short
position represents a contract to sell a Government security in
the future. The establishment of both long and short positions
in the same type of commodity is called a spread or a straddle.
In the minds of the partners of Holly, in actuality and in
substance, Holly’s investments in commodity forward contracts
involved nothing more than contracts to speculate in or to
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