1. A put option on crude oil strike at $45. What is your payoff at...
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1. A put option on crude oil strike at $45. What is your payoff at the option expiration when the futures price is $49?
2. A consumer of natural gas buys a call struck at $2.50 per MMBTU for $.2/MMBTU. The call expires in October. Suppose the price of natural gas in October is: a). $2.25 b). $3 c). $3.75 For each case, explain whether the consumer should exercise this call or not. Calculate the consumers profit (or loss) from the above long position for each case.
3. ) The price of gold is currently $490 per ounce. The forward price for delivery in 1 year is $540 per ounce. An arbitrageur can borrow money at 8% per annum. What should the arbitrageur do? What is the arbitrageur's net profit? Assume that the cost of storing gold is zero and that gold provides no income.
4. The initial margin for NYMEX May natural gas futures is $1800. The maintenance margin level is $1500. At the beginning of the day, you were short 1 NG futures contract, and you had $1750 in your margin account. Today, the NG price rises $.07/MMBTU. (Each NG futures contract is for 10,000 MMBTU). a. How much money is in your Margin account at the end of the day? b. Will you receive a margin call? c. How much margin money must you pay before trading opens tomorrow?
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