(1) A trader enters into a short futures contract to sell 5,…
(1) A trader enters into a short futures contract to sell 5,000 bushels of wheat for $3.80 per bushel. He exits the position at $4.00/bushel. (i) (2 pts) What is the total profit or loss? (ii) (3 pts) Draw the position diagram. (2) A trader enters into a long futures contract to sell 5,000 bushels of wheat for $3.80 per bushel. He exits the position at $4.00/bushel. (i) (2 pts) What is the total profit or loss? (ii) (3 pts) Draw the position diagram. (3) An investor sells a corn call option with a strike price of $3.55/bushel for $0.15/bushel. (i) (2 pts) Write the payoff functions when futures price at maturity is above and below strike price. (ii) (3 pts) Draw a diagram showing the variation of the investor’s profit or loss with the futures price at the maturity of the option. (4) An investor pay a premium of 10 cents per bushel for a corn put option with a strike price of $3.50. (i) (2 pts) Write down the payoff functions when the futures price at maturity is above or below the strike price. (ii) (3 pts) Draw a diagram showing the variation of the investor’s profit or loss (including premium) with the futures price at the maturity of the option.
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