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10. Consider the following prices for coffee options which were taken from WSJ. The units are dollars per pound of coffee Strike July Calls July Puts 1.600.1125 1.650.1000 1.700.0900 1.750.0760 0.1635 0.2000 0.2410 0.2770 The futures price for July delivery is S1.549/1b. Ignore the time value of the money. Suppose I am a coffee producer (i.e. I sell coffee ). Assume my break-even price (a) If I want to lock in a selling price for coffee, what futures position should I for coffee is S1.55/lb take? What profit have I locked in? (b) I would like to protect myself against drops in the July price of coffee but still benefit if the July price of coffee rises. What option position should I take if I want a S1.65/lb floor-i.e., the option provides a hedge against price drops to S1.65 or lower-on my selling price? What is the lowest "all-in" price (i.e. the net cost or revenue from the option plus the revenue from the coffee) that I will receive for the coffee? Draw the profit diagram with and without the floor. At what July spot price for coffee does the hedged position start to do better than the unhedged position? (c) How would I get a collar with a S1.60 floor and a $1.70 cap-i.e., my profit is capped when the price of coffee is S1.70 or higher? Draw the profit diagram for the collar. At what July spot price for coffee does the collar start to do better than the unhedged position