Question
**A trader enters into a long cotton futures contract when the futures price is 80 cents per pound. The contract is for the delivery of
**A trader enters into a long cotton futures contract when the futures price is 80 cents per pound. The contract is for the delivery of 50,000 pounds
1- Assume this same trader wants to purchase a cotton call option. Assume the current futures prices is still 80 cents per pound and the premium rate for a call option with K=75 is 7.5 cents per pound.
a. How much does the trader gain or lose if the cotton price at the end of the contract is 67.50 cents per pound.
b. How much does the trader gain or lose if the cotton price at the end of the contract is 97.80 cents per pound.
c. Compare the difference in payouts between the use of a long futures and call option contract.
Please do(q1) a-b-c
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