Question

Suppose you purchase the May 2017 put option on corn futures with a strike price of $3.60. Assume your purchase was at the last price. Use Table 23.2 a. How much does your option cost per bushel of corn? (Round your answer to 5 decimal places, e.g., 32.16161.) b. What is the total cost for one contract? Assume each contract is for 5,000 bushels. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. Suppose the price of corn futures is $3.43 per bushel at expiration of the option contract. What is your net profit or loss from this position? (Enter your answer as a positive value. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) d. What is your net profit or loss if corn futures prices are $3.79 per bushel at expiration? (Enter your answer as a positive value. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

TABLE 23.2 Sample CME Group Futures Options Price Quotations Underlying Future Prior Satte HI/LOW Limit Charts Last Change High LOW volume Updated May 2017 3814 3772 3760 122.909 40701 3570 16.38.37 CT 10 FeO 2017 Type: American Options Expiration: May 2017 Strike Range: At The Money Calls Puts HII LOW Limit Strike Price Updated Volume High Prior Settle Change Last Low Prior Last Change Settle Low Limit Updated LON High Volume 15 38 57 CT 10 Feb 2017 No Limit 00 231 274 237 227 267 360.0 51 5'5 50 53 No 591 Limit 00 16 3802 CT 10 Feb 2017 16.3837 CT 10 Feb 2017 No Limit 00 2 235 195 235 3650 67 70 No 676 Limit 00 163854 CT 10 Feb 2017 15 38:47 CT 10 Feb 2017 NO Limit 702 205 191 168 197 370.0 35 us 94 81 97 NO 917 Limit 00 163806 CT 10 Feb 2017 16.38.40 CT 10 Feb 2017 NO Limit 00 357 171 163 171 375.0 103 -14 117 117 103 107 NO 3.949 Limit 00 1638.06 CT 10 Feb 2017 NO 16 3824 CT 15:38:37 CT 10 Feb 2017 Limit! 924 150 123 117 150 3800 127 -18 145 126 161 NO 1.095 LIR 00 10 Feo 00 2017 NO 163907 CT 10 Feb 2017 LIME 44 125 12097 125 3950 175 No 0 Lim 00 16 3809 CT 10 Feb 2017 00 16:38:47 CT 10 Feb 2017 NO Limit 00 196 110 84 81 105 390.0 191 -18 207 186 200 NO 183 LIM 00 1638:47 CT 10 Feb 2017 1638 25 CT 10 Feb 2017 NO Limit 53 83 66 83 3950 243 NO 0 Limit 00 CT 10 Feb 2017 16.38.48 CT 10 Feb 2017 NO Limit 230 75 56 54 75 4000 282 NO 11 Limit 00 1638:41 CT 10 Feb 2017 16,38:47 CT 10 Feb 2017 NO Limit 00 185 57 55 15 57 405.0 NO 0 Limit 00 16 39.00 CT 10 Feb 2017 2 About This Report Source: CME Group (www.cmegroup.com), February 10, 2017.

Answer 1

Option a Put Option Cost at Strike Price $ 360 = $ 5.1 Option b Contract = 5000 Bushels Lot Price = $ 5.1 Total Cost of Contract = 5000 * 5.1 = $25,500 Option c In Put we will profit if price dropped below Stike Price Future Price at Expiry = $ 343 Strike Price = $ 360 Option Cost = $ 5.1 Profit per bushel = $ 360 - $ 343 - $ 5.1 = $ 11.9 Profit on Contract = 5000 * 11.9 = $ 59,500 Option d In put if Future price is above stike price. Holder will not exercise his option. So max loss will be limited to his Put Premium Loss = 5000 * 5.1 = $ 25,500