7. Suppose that a trader sold a put option on a stock at strike price $27.50 and

Question

7. Suppose that a trader sold a put option on a stock at strike price $27.50 and premium S1.25 per share. On the expiration date for the put option, market price of the stock was $24.75 per share. The put writer's net profit/loss per contract (100 shares) was a. $150.00 b. -$150.00 C. $275.00 d. -$275.00 21.50-27 8. A hedger eliminates cash price risk with hedging, but assumes 1.5 a. futures price risk b. financial risk c. production risk d, basis risk 9. On 06 June 2018, the cash price of soybean in Chicago was 98150 cents per bushel and the setlement price of Sep 2018 CBOT soybean futures contract was 1,020.50 cents per bushel. The 931.50-1020 50--33 Basis was a. 39.00 cents per bushel b. 2,010.00 cents per bushel c.) -39.00 cents per bushel d.-167.00 cents per bushel 10. The higher the correlation between cash and futures prices the higher the basis risk the lower the cash price risk the higher the cash price risk the lower the basis risk a. b. ints Q1. On June 2018, the October cotton futures settlement price in the New York Board of Trade NYBOT) was 91.50 cents per pound and the cash closing price of cotton in Lubbock, Texas, was?9.22 cents per pound. The simple short-term borrowing interest rate in the US, was 8% in June 2018. The local rate for storing and insuring cotton in Lubbock was 2 cent per pound per month. The cost of shipping cotton from Lubbock to New York in October 2018 is estimated to be 1 cents per pound. Assume that there is no other cost in trading

Explanation / Answer

Ans 7)

When we are short on put option then if Strike Price (X) is higher than Stok price at maturity (St) we are making loss of -[(X-St)-Premium]

Net Loss =-[(27.5-24.75)-1.25]*100=-150

Option B is correct response

Ans 8)

Basis Risk as it is the difference between future price and stock price it is about futures/forwards for the purpose of hedging

Option D is correct response

Ans 9)

If Cash Price is higher than Future Price then Basis will be positive and otherwise negative

In our case 981.5-1020.5=-39 cents per bushel

Option C is correct response

Ans 10)

The higher the correlation cash and futures price will move in same direction that means basis risk will be less (Difference between Cash and Futures Price ) is minimum

Option D is correct response

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