Futures and Options Below are several scenarios that requires the use of derivatives. You will be recommending a basic strategy to these clients given what we have discussed in class up to this point. Your answer should be clear and concise at to the best derivative to use. Please give a brief explanation as to why you are recommending the derivative. Since we haven't gone over more complex option and futures combination strategy, use only the available derivative strategies below. 1. Long Call Contract (Out of the Money, At the Money, In the Money) 2. Short Call Contract (Out of the Money, At the Money, In the Money) 3. Long Put Contract (Out of the Money, At the Money, In the Money) 4. Short Put Contract (Out of the Money, At the Money, In the Money) 5. Long Futures Contract 6. Short Futures Contract In the case of options, the strategy is more important than the moneyness' 2. A frozen food company serving the western half of the United States is worried about supply chain issues and potential inflation that may start to ease into the company's costs. The CFO wants to start to hedge these costs through the use of exchange traded futures and options. The company has a packing plant in California and distributes its frozen food to the western part of the U.S. The company has several refrigerated delivery trucks to distribute its product to grocery stores. The company sells primarily three frozen food packages with animal proteins combined with various sides. Some of these costs are immediate and need to be delt with but the CFO is looking 3 to 6 months in the future for potential price increases in the costs. You are tasked with working with the CFO to reduce or hedge the costs associated with the entire business. Discuss at least 5 ways to hedge any potential cost increases and the benefits and drawbacks to your recommended strategy. Futures and Options Below are several scenarios that requires the use of derivatives. You will be recommending a basic strategy to these clients given what we have discussed in class up to this point. Your answer should be clear and concise at to the best derivative to use. Please give a brief explanation as to why you are recommending the derivative. Since we haven't gone over more complex option and futures combination strategy, use only the available derivative strategies below. 1. Long Call Contract (Out of the Money, At the Money, In the Money) 2. Short Call Contract (Out of the Money, At the Money, In the Money) 3. Long Put Contract (Out of the Money, At the Money, In the Money) 4. Short Put Contract (Out of the Money, At the Money, In the Money) 5. Long Futures Contract 6. Short Futures Contract In the case of options, the strategy is more important than the moneyness' 2. A frozen food company serving the western half of the United States is worried about supply chain issues and potential inflation that may start to ease into the company's costs. The CFO wants to start to hedge these costs through the use of exchange traded futures and options. The company has a packing plant in California and distributes its frozen food to the western part of the U.S. The company has several refrigerated delivery trucks to distribute its product to grocery stores. The company sells primarily three frozen food packages with animal proteins combined with various sides. Some of these costs are immediate and need to be delt with but the CFO is looking 3 to 6 months in the future for potential price increases in the costs. You are tasked with working with the CFO to reduce or hedge the costs associated with the entire business. Discuss at least 5 ways to hedge any potential cost increases and the benefits and drawbacks to your recommended strategy
