Section 4 - Option Hedge Problems 1. Long Hedging with Options on Futures (Futures increase) (5pts) Today: Cash soybeans at $13.00; July futures at $13.30 Buy July $13.40 call at 45 cents Later: Purchase cash soybeans at $13.80; July futures at $14.10; Sell July $13.40 call at 85 cents What is the net purchase price of the soybeans? (Show work by answering each of the items below) Cash price paid: +/- Option premium gain or loss: Net buying price: 2. Short Hedging with Options on Futures (Futures decrease) (5 pts) Today: Cash corn at $6.20; July futures at $6.40; Buy July $6.40 put at 30 cents Later: Sell cash corn at $5.50; July futures at $5.70; Sell July $6.30 put at 80 cents What is the net selling price of the wheat? (Show work by answering each of the items below) Cash sales price: +/- Option premium gain or loss: Net selling price: 1. At expiration of the April live cattle options, April futures are at $125.00/cwt. Based on that underlying futures price, what should the premium be for the following puts and calls? (20 pts) $123.00Call:$124.00Call:$125.00Call:$126.00Call:$127.00Call:$127.00Put:$126.00Put:$125.00Put:$124.00Put$123.00Put: 4. Place the following attributes under the appropriate headings below, 5 for each heading (10 pts) You may list the number associated with the attribute under to heading. 1. Pay premium 2. Collect premium 3. Have right to exercise the option 4. Have obligation if assigned resulting in a short position in the underlying futures contract 5. Have time working against them 6. Have time working in their favor 7. Have no margin risk 8. Have margin risk 9. Benefits when underlying future price increases 10 Benefits when underlying futures price decreases Call Buyers Call Sellers Extra Credit: List up to 5 of the 7 elements of a cash contract-one point for each correct answer up to points