A. If a call's strike price is above the underlying market price, what is the option moneyness and does it make the premium of the coll relatively expensive or cheap and why? B. Does the above call option hove on intrinsic value and why? C. If a put's strike price is above the market price, what is the option moneyness and does it make the price of the put expensive or cheap and why? D. Does the above put option heve an intrinsic volue and why? 2. (4 points) A. Define contango and bockwardation of a futures market. B. What would cause a futures market to move from contango to baciwardation? (in your answer use of futures moriket as an example to help support your answer] 3. (4 points) If you are Short a futures positon and the market is in backwardation, is the roll yleid positive or negative and why? 4. (4 points) What are the four components of Risk Manogement? Define each component and give an example of eoch component. 5. (6 points) The price of crude oil is currently $71.67 per barrel. The forward price for delivery in one year is $86.43 per barrel. An arbitrageur can borrow money at 4.38% per annum. There are 100 barrels of oil in each forward controct. Assume that the cost of storing crude all is 50 and crude oil provides no income during this time period. A. Is this forward curve in contango or backwardation and explain why? 8. Could this scenario be profitable? What should the arbitrogeur do and why? (Show calculations) A. If a call's strike price is above the underlying market price, what is the option moneyness and does it make the premium of the coll relatively expensive or cheap and why? B. Does the above call option hove on intrinsic value and why? C. If a put's strike price is above the market price, what is the option moneyness and does it make the price of the put expensive or cheap and why? D. Does the above put option heve an intrinsic volue and why? 2. (4 points) A. Define contango and bockwardation of a futures market. B. What would cause a futures market to move from contango to baciwardation? (in your answer use of futures moriket as an example to help support your answer] 3. (4 points) If you are Short a futures positon and the market is in backwardation, is the roll yleid positive or negative and why? 4. (4 points) What are the four components of Risk Manogement? Define each component and give an example of eoch component. 5. (6 points) The price of crude oil is currently $71.67 per barrel. The forward price for delivery in one year is $86.43 per barrel. An arbitrageur can borrow money at 4.38% per annum. There are 100 barrels of oil in each forward controct. Assume that the cost of storing crude all is 50 and crude oil provides no income during this time period. A. Is this forward curve in contango or backwardation and explain why? 8. Could this scenario be profitable? What should the arbitrogeur do and why? (Show calculations)
