INSTRUCTIONS: This question contains three parts. Answer all parts of the questions. Clearly label your response to each part using bold text For example: Part ay Your response... (a) What differences exist between an American Call option and European Put option? (2 marks) (b) in August 2020, wheat is trading at $292 per tonne, a wheat farmer decided to hedge her entire anticipated 1.000 tonne wheat harvest with January 2021 wheat futures that were trading at a price of $290 per tonne In January 2021, the farmer harvested 1.100 tonne of wheat and sold this wheat at auction for $270 per tonne. She then dosed out her January wheat futures contracts for $275 per tonne. From this information and using a standard wheat futures contract size of 20 tonne per contract, calculate the overall value of the harvested crop including the profit or loss from futures trading 4.5 marks) (c) on 11 October 2020, Boral Limited (BLD) shares were trading at $5.20 while the November 2020 BLD Call and Put options with exercise prices of $6 were trading at $0.20 and $1.10, respectively. As an options trader, you firmly believe that the share price will increase dramatically in the near future given the upcoming government investment in Infrastructure to stimulate the economy Given this information and the fact that the standard option contract size is 100 shares per contract, outline an option trading strategy in the Call and the Put that will profit from an increase in BLD share price and demonstrate that the strategy is profitable if the price of a BLD share is $6.50 on the option's expiry date che in November) INSTRUCTIONS: This question contains three parts. Answer all parts of the questions. Clearly label your response to each part using bold text For example: Part ay Your response... (a) What differences exist between an American Call option and European Put option? (2 marks) (b) in August 2020, wheat is trading at $292 per tonne, a wheat farmer decided to hedge her entire anticipated 1.000 tonne wheat harvest with January 2021 wheat futures that were trading at a price of $290 per tonne In January 2021, the farmer harvested 1.100 tonne of wheat and sold this wheat at auction for $270 per tonne. She then dosed out her January wheat futures contracts for $275 per tonne. From this information and using a standard wheat futures contract size of 20 tonne per contract, calculate the overall value of the harvested crop including the profit or loss from futures trading 4.5 marks) (c) on 11 October 2020, Boral Limited (BLD) shares were trading at $5.20 while the November 2020 BLD Call and Put options with exercise prices of $6 were trading at $0.20 and $1.10, respectively. As an options trader, you firmly believe that the share price will increase dramatically in the near future given the upcoming government investment in Infrastructure to stimulate the economy Given this information and the fact that the standard option contract size is 100 shares per contract, outline an option trading strategy in the Call and the Put that will profit from an increase in BLD share price and demonstrate that the strategy is profitable if the price of a BLD share is $6.50 on the option's expiry date che in November)
