A pasta manufacturer wants to protect against higher wheat prices between now (March) and July, when he plans to buy a large amount of wheat. In order to protect against price increases, while at the same time taking advantage of lower wheat prices, he decides to buy a $6.00 /bu September Wheat Call option, paying a premium of $0.30. Assume that the basis is fixed at $0.30/ bu above futures. 1. Complete the following table containing the performance of the Long $6.00/bu September Wheat Call and the buying price for the values of the futures contract. (6 points) 2. Create a graph of the profit-loss profile of the option (do NOT include the buying price of wheat). Use the futures prices found on the sheet 'Part I' of the Lesson 14 Problem Set Data spreadsheet. You do not need to submit the excel file, you can copy and paste the graph in your word document. Make sure to indicate the strike price, strike price + premium, profits, and losses. Hint: Check out the AGBM320_PriceRiskMgmt spreadsheet for a Long Call example. (5 points) 3. Based on your results in question 1 and the profit-loss profile that you created in question 2, briefly describe: 1) the coverage that the pasta manufacturer achieves; 2) the maximum buying price he will pay, and 3) the advantages and disadvantages September Wheak Futures 4.14.24.34.354.44.454.54.554.64.654.754.74.84.854.94.9555055.15.55.25255.35.355.45.455.55.555.65.555.655.75585855959566.056.1 A pasta manufacturer wants to protect against higher wheat prices between now (March) and July, when he plans to buy a large amount of wheat. In order to protect against price increases, while at the same time taking advantage of lower wheat prices, he decides to buy a $6.00 /bu September Wheat Call option, paying a premium of $0.30. Assume that the basis is fixed at $0.30/ bu above futures. 1. Complete the following table containing the performance of the Long $6.00/bu September Wheat Call and the buying price for the values of the futures contract. (6 points) 2. Create a graph of the profit-loss profile of the option (do NOT include the buying price of wheat). Use the futures prices found on the sheet 'Part I' of the Lesson 14 Problem Set Data spreadsheet. You do not need to submit the excel file, you can copy and paste the graph in your word document. Make sure to indicate the strike price, strike price + premium, profits, and losses. Hint: Check out the AGBM320_PriceRiskMgmt spreadsheet for a Long Call example. (5 points) 3. Based on your results in question 1 and the profit-loss profile that you created in question 2, briefly describe: 1) the coverage that the pasta manufacturer achieves; 2) the maximum buying price he will pay, and 3) the advantages and disadvantages September Wheak Futures 4.14.24.34.354.44.454.54.554.64.654.754.74.84.854.94.9555055.15.55.25255.35.355.45.455.55.555.65.555.655.75585855959566.056.1
