Answered step by step
Verified Expert Solution
Question
1 Approved Answer
4. Assume you are speculating that wheat prices will continue to slightly increase over the next several months and you wish to Sell a Put
4. Assume you are speculating that wheat prices will continue to slightly increase over the next several months and you wish to Sell a Put Option for December wheat. Checking the markets, you see that a wheat put option with a strike price of $5.56/bushel has a premium of $0.09 per bushel. Assume you wait until December (maturity) to evaluate the outcome. Remember, as the seller of this option you receive the premium up front. Answer the following questions: m. Graph this Sell Put Option using the options payoff chart discussed in the lectures clearly labeling the axes, strike price, premium, and breakeven price. (10 Points) n. At what market price of wheat (in $/bushel) would you have made a net gain on this option? You may include a range of prices if you prefer. (5 Points) 0. At what market price of wheat (in $/bushel) would the option have been used by the buyer? You may include a range of prices if you prefer. (5 Points) p. At what market price of wheat (in $/bushel) would the owner of the option have just let the option expire? You may include a range of prices if you prefer. (5 Points)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started