1. A trader enters a short cotton futures contract when the futures price is 50 cents per pound. The contract is for the

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1 A Trader Enters A Short Cotton Futures Contract When The Futures Price Is 50 Cents Per Pound The Contract Is For The 1 (81.7 KiB) Viewed 26 times

1. A trader enters a short cotton futures contract when the futures price is 50 cents per pound. The contract is for the delivery of 50,000 pounds. How much does the trader gain or lose if the cotton price at the end of the contract is a. 48.20 cents per pound and b. 51.30 cents per pound? 2. Suppose that a June put option to sell a share for $60 costs $4 and is held until June. Under what circumstances will the seller of the option (i.e., the party with the short position) make a profit? Under what circumstances will the option be exercised? Draw a diagram illustrating how the profit from a short position in the option depends on the stock price at maturity of the option. 3. On May 21, 2020, as indicated in Table 1.2, the spot ask price of Apple stock is $316.50 and the ask price of a call option with a strike price of $320 and a maturity date of September is $21.70. A trader is considering two alternatives: buy 100 shares of the stock and buy 100 September call options. For each alternative, what is a. the upfront cost, b. the total gain if the stock price in September is $400, and C. the total loss if the stock price in September is $300. Assume that the option is not exercised before September and positions are unwound at option maturity.