Question

Suppose a financial manager buys call options on 52,000 barrels of oil with an exercise price of $87 per barrel. She simultaneously sells a put option on 52,000 barrels of oil with the same exercise price of $87 per barrel. Consider her gains and losses if oil prices are $77, $74, $82, $87, and $90. What if oil futures prices are $93.26 per barrel at expiration? (Do not leave any empty spaces; input a 0 wherever it is required. Negative answers should be indicated by a minus sign.) $77 $74 $82 $87 $90 $93.26 Market price Payoffs per barrel $

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

ONLY PAYOFFS CAN BE CALCULATED, PREMIUMS ARE NOT GIVEN SO NET PROFIT OR LOSS CAN NOT BE CALCULATED

File Home Insert Page Layout Formulas Data - 2x fic 2 O ? A o NPV, IRR, PBP,OCFINDEX - Microsoft Excel (Product Activation Failed) Review View Add-Ins a Define Name Trace Precedents 5 Show Formulas f Use in Formula Trace Dependents Error Checking Math More Name & Trig Functions Manager Create from Selection Remove Arrows" Evaluate Formula Defined Names Formula Auditing @ 3 Calculate Now Watch Window Insert AutoSum Recently Financial Logical Text Date & Lookup & Function Used - Time Reference Function Library IR541 Calculation Calculate Sheet Options Calculation IM 10 P Q IR ISIT TU IV 523 524 525 ILIJIK bought call options = sell put options = IL 52000 BARRELS 52000 BARRELS IN exercise price = exercise price = 87 87 526 market price pay off 527 on call options payoff per barrel 528 А on put options B -10 A+B 529 77 530 ---------- answer 531 82 87 532 533 90 534 93.26 6.26 6.26 535 536 buy call options = will exercise only when market price > exercise price so 87 is breakeven price At 87, pay off will be (90-87)= 3 and at 93.26 it will be (93.26-87) = 6.26 537 538 539 540 sell put options = you are a writer, so your payoff will be zero or negative if price goes below exercise price, your pay off will be negative, otherwise zero so when price is 77, payoff = (77-87)=-10 and at 74, pay off will be (74-87) = -13 AND SO ON 541 542 543 H O CF CASH FLOW STATWFCFARM, MSI, confidenceINDEX ferences CURRENCY LOAN CROSS OVER HEDGING MONEY MARKET GM HPR AM TAX GROWTH SUST 0 _ 1 Rea + PREF AND DIV POLICY_0 200 120% . * o OENG NO 9 24-11-2019