2 35 5 n class we went over exactly what happened in the movie 'Trading Places.' Dan Aykroyd (DA) and Eddie Murphy (EM) (pic below) got a hold of the actual orange crop report, altered it, and gave it back to the 'two old guys' - the Duke brothers. WISHREWO NOVIDEO CA Y60061223 Given the altered crop report, the Duke brothers thought that the freeze destroyed a portion of the orange crop and thus, believed that the price of orange juice would skyrocket given the bad orange crop (low supply!). Dan Aykroyd and Eddie Murphy knew the true report which indicated that the orange crop was just fine, the cold weather had a negligible (small if any) effect on the orange crop. Orange juice futures contracts are for 15,000 pounds of orange juice and are priced in cents per pound (i.e. 150 = $1.50 per pound) The margin requirement in Stock Trak is $1,100 per contract. In what follows we will re-create the scene using the Nov. 2020 OJ futures contracts. OJ FUTURES - NOV. 2020 130.00 B = 125 125.00 mm hum A = 120 120.00 n im M D = 115 115.45 who C = 110 110.00 105.00 5000 009 133 May 4 May 18 Jun 1 Jun 15 Jun 29 Jul 13 Jul 27 Aug 10 Aug 24 Sep 8 Sep 21 Oct 5 Oct 19 The Duke brothers open up their position at point A by buying one Nov. 20 OJ futures contract when the price is 120. The leverage ratio when they opened up their position is between 16 and 17. ? Answer T for true and F for false. If the Duke brothers close at point B, when the price is 125, their rate of return is over 65%. Answer T for true and F for false. Now let's add a little twist to the story. One of the Duke brothers isn't sure about the validity of the orange crop report that they received and thus is concerned that if the orange crop is fine, they can lose a lot of money (as they did in the movie). So he seeks out someone that knows his or her finance and that person is you.....they need to hedge their long position! So you instruct them to take their long position at open by buying one Nov. 20 OJ futures when the price is 120 (as above). You then tell them to hedge their long position by buying one Nov. 20 futures options put on OJ with a strike price of 125. The premium on the futures option put is $600. Both positions (for the Duke brothers) are closed when the futures price of OJ is 110 (point C). Given both bets and assuming that 110 is the price at expiration, the Duke brothers made a profit of over $1000. Answer T for true and F for false. Suppose that the Duke brother that sought you out for your financial advice agreed to give you a check for 10% of the money that you saved them with the hedge, but only if the hedge worked. The check would be under $20. Answer I for true and F for false. Use the graph below to answer the following questions: Please do not use $ signs in your answer and don't use any commas as in a profit of $3000 = 3000, not $3000, and not $3,000. Please take care here, thanks! + A B 125 Futures Price @ Expiration 110 120 BE Point The profit associated with point A in graphic above is The breakeven point for the futures options put (point B in graphic) is Total profits for the Duke brothers are the same if the futures price at expiration is 125 or less and would be even higher if the futures price at expiration was above 125. . Answer T for true and F for false. 2 35 5 n class we went over exactly what happened in the movie 'Trading Places.' Dan Aykroyd (DA) and Eddie Murphy (EM) (pic below) got a hold of the actual orange crop report, altered it, and gave it back to the 'two old guys' - the Duke brothers. WISHREWO NOVIDEO CA Y60061223 Given the altered crop report, the Duke brothers thought that the freeze destroyed a portion of the orange crop and thus, believed that the price of orange juice would skyrocket given the bad orange crop (low supply!). Dan Aykroyd and Eddie Murphy knew the true report which indicated that the orange crop was just fine, the cold weather had a negligible (small if any) effect on the orange crop. Orange juice futures contracts are for 15,000 pounds of orange juice and are priced in cents per pound (i.e. 150 = $1.50 per pound) The margin requirement in Stock Trak is $1,100 per contract. In what follows we will re-create the scene using the Nov. 2020 OJ futures contracts. OJ FUTURES - NOV. 2020 130.00 B = 125 125.00 mm hum A = 120 120.00 n im M D = 115 115.45 who C = 110 110.00 105.00 5000 009 133 May 4 May 18 Jun 1 Jun 15 Jun 29 Jul 13 Jul 27 Aug 10 Aug 24 Sep 8 Sep 21 Oct 5 Oct 19 The Duke brothers open up their position at point A by buying one Nov. 20 OJ futures contract when the price is 120. The leverage ratio when they opened up their position is between 16 and 17. ? Answer T for true and F for false. If the Duke brothers close at point B, when the price is 125, their rate of return is over 65%. Answer T for true and F for false. Now let's add a little twist to the story. One of the Duke brothers isn't sure about the validity of the orange crop report that they received and thus is concerned that if the orange crop is fine, they can lose a lot of money (as they did in the movie). So he seeks out someone that knows his or her finance and that person is you.....they need to hedge their long position! So you instruct them to take their long position at open by buying one Nov. 20 OJ futures when the price is 120 (as above). You then tell them to hedge their long position by buying one Nov. 20 futures options put on OJ with a strike price of 125. The premium on the futures option put is $600. Both positions (for the Duke brothers) are closed when the futures price of OJ is 110 (point C). Given both bets and assuming that 110 is the price at expiration, the Duke brothers made a profit of over $1000. Answer T for true and F for false. Suppose that the Duke brother that sought you out for your financial advice agreed to give you a check for 10% of the money that you saved them with the hedge, but only if the hedge worked. The check would be under $20. Answer I for true and F for false. Use the graph below to answer the following questions: Please do not use $ signs in your answer and don't use any commas as in a profit of $3000 = 3000, not $3000, and not $3,000. Please take care here, thanks! + A B 125 Futures Price @ Expiration 110 120 BE Point The profit associated with point A in graphic above is The breakeven point for the futures options put (point B in graphic) is Total profits for the Duke brothers are the same if the futures price at expiration is 125 or less and would be even higher if the futures price at expiration was above 125. . Answer T for true and F for false