1. Both options and futures can be used to speculate or to hedge. Explain what specifically makes futures and options attractive for speculation.

A corn farmer is trading to hedge his position in corn that he expects to harvest in 3 months/ Explain the risks the farmer is facing what would be the adverse change in price. How the farmer can hedge his position to reduce or eliminate his risks.

2: An investors buys a share of stock for the price of $50 however he is concerned that the price of stock may go down. He buys a put with strike of $48 and pays premium of $1.50. At expiration of the put the stock price is $45. Compute payoff of the protective position (position that include long stock and long put) You can assume 100 shares in your calculations.