Question

Please show how to get this answer

Trader A entered into 10 futures contracts to buy gold for $1,100 an ounce in December. Trader B bought 10 call options to buy gold for $1,120 in December. The cost of the option was $25.00 per ounce. Gold's contract size is 100 troy ounces. Calculate for both traders total profit/loss from the position if GOLD price in December will be $1,040. O A A:+$60,000. B: +$25,000 O B A:-$60,000. B:-$25,000. O C A:-$60,000. B:-$80,000. O D A: -$60,000. B:-$105,000.

Answer 1

Trader A entered into futures contract

Loss = (1040-1100)*100*10

= -$60,000

Trader B entered into call option. Since the market price is less than exercise price, trader will not exercise. Total Loss will be equal to the amount of option premium paid

= 25*100*10

= - $25,000

Hence, the answer is B