Solve d and d
d. Instead of futures if you purchase an option contract, what option will you purchase? Assume purchase June call/put with a K=12200 c/100. What is your profit or loss from this trade. assuming the underlying future price is 1.25$/? d. Make a profit chart based on your option position (from part d) and label the graph in the money, out of the money, break even.) e s we all want to keep our 11 PM ture risk in every case, sim@ly70870 businesspersons also want to hedge their risks from probable currency fluctuations. There are possibilities with volatile currencies Dollar Euro) in future viz. either Dollar price will go up gainst Eure or it will go down. In order to mitigate these kind of risks, following actions can be sken as per the situations 1) Dollar price would go down or depreciate in future. For example, if presently, Euro $1.10 and the revenue which could have been earned by the US exporter, for exporting goods worth S300000, had been $330000 (53000001.10) and if the value of dollar will go down to $1.20, the me revenue will be S160000 (5300000 1.20) which will be profitable for the exporter as he can make a profit of around 10000 0 000-5330000) 2) If Dollar price would go up er appreciate in future. For example, if presently. I Euro-S1.10 and the revenue which could have been comed by the US exporter, for exporting goods worth 100000, had been $130000 5 0000 110) and if the value of dollar will go up to SIOS, the sand revenue will be $324000 53000001.08), which will be lower than what he could have earned if dollar valse had gone down (mentioned in paint above although still profitable Therefore, in such case when there are probability of dollar value going down in future, the trader should go for short position in currency future so that he can take long position in future when there are chances of dollar value to go up. If the trader go for short position at 1.232 with contract size 125000, and the underlying future price for June while liquidating the position is 1.214, he would incur a loss (1.232- 1.2140125000 250 Euro ANSWER (b)- Options are another type of derivative where there are some rights to buy or sell ulike futures where there is always an obligation to exercise the same. There are 2 types of ptions- 1) CALL OPTION- This option has 2 parties viz., Call Buyer and Call Seller Call Buyer buys the underlying asset whereas call seller sells the underlying asset Call Buyer has the right to either puy the underlying asset by exercising his option or not whereas call seller has an obligation to sell or not (depending upon whether call buyer exercises his option or not. Call Buyer always has to a ray a minimum amount as a "Prew to the call eller irrespective of his decision to exercise his option which is his minimum loss. Now, Call Buyer will always exercise his option when he finds that the strike or exercise price is less than the sport price because in that case, the call buyer will Fave to pay less to buy a security at lower price than the spot or market price and the same would be considered "In The Money" for Call Buyer and vice versa. 2) PUT OPTION. This option also has 2 parties viz. Put Buyer and Put Seller. Put Buyer sells the underlying asset whereas put seller buys the underlying asset. Put Buyer has right to either sell the underlying asset by exercising his option or not whereas put seller has an obligation to buy or not depending upon whether put buyer exercises his option or not). Put Buyer always has to pay a minimum amount as a "prw t o put seller irrespective of his decision to exercise his option which is his minimum loss. Now. Put Buyer will always exercise his option when he finds that the arike or exercise price is higher than the spot price because in that case, the pul buyer can cam more by selling the security at higher price than the spot or market price and the same would be considered "In The Money for Put Buyer and vice versa. In the above chart IN THE MONEY SITUATIONS STRIKE PRICE CALL OPTION PUT OPTION 12100 when sport price > 12100 when sport price 12400 when sport price 12500 when sport price C1.22725 + 1.23295)/2= 1.2301 b. Form the table above, list which options are in the money (both call and puts) kelt(/6) Call 121 Tn i 1.22 1.24 In the money out of the Money In the madey out of the Money Tout of the money in the money out of the money In the monly ] c. Make a profit chart based on your futures position, from part a, and label the graph. d. Instead of futures if you purchase an option contract, what option will you purchase? Assume you purchase June call/put with a K = 12200 c/100C. What is your profit or loss from this trade, assuming the underlying future price is 1.25$/? d. Make a profit chart based on your option position (from part d) and label the graph. (in the money, out of the money, break even.) Q1. Low Futures Contract: April, 22, 2018: Euro Contract Size 125,000 . Price Quote S/ Contract Last Open High E6Y00 (Cash) 1.22034 1.22650 1.22894 E6K18 (May '18) 1.22410 1.22995 1.23035 E6M18 (Jun '18) 1.22725 1.23295 1.23390 E6N18 (Jul '18) 1.23050 1.23630 1.23630 1.22025 1.22225 1.22515 1.22840 Options Contract: April 22, 2018: Euro Contract Size 125,000 Strike (/100) 12100 12200 12400 12500 Call Premium (S/E) May June July 0.0239 0.0265 0.0363 0.0151 0.0191 0.0286 0.0080 0.0130 0.0161 0.0036 0.0084 0.0116 Put premium (SE) May June July 0.0007 0.0033 0.0042 0.0019 0.0059 0.0064 0.0248 0.0197 0.0138 0.0303 0.0251 0.0202 a. Refer to April 2018 Euro contract in the above table. You are expecting US dollar to decrease in value with the new traffic on exports. What position you take in the June 18 futures market? If you bought/sold at the settlement price and you liquidated the position when the underlying future price for June is 1.2345/. What is your profit or loss from this trade? Assume you sold only one futures contract and ignore brokerage fee. * me on le dollow Mut denne. evro contrast, siree yu expect the US. *Profit of Trade (1.234-1.2301). 12500 Euro 487.5) future settlement prices (1.22725 + 1,23795)/2: 1.2301 b. Form the table above, list which options are in the money (both call and puts) nikelt/ Call Put In the money out of the Money In the money out of the Money out of le money in the Manly Tout of the money in the monty 1-21 1.25 d. Instead of futures if you purchase an option contract, what option will you purchase? Assume purchase June call/put with a K=12200 c/100. What is your profit or loss from this trade. assuming the underlying future price is 1.25$/? d. Make a profit chart based on your option position (from part d) and label the graph in the money, out of the money, break even.) e s we all want to keep our 11 PM ture risk in every case, sim@ly70870 businesspersons also want to hedge their risks from probable currency fluctuations. There are possibilities with volatile currencies Dollar Euro) in future viz. either Dollar price will go up gainst Eure or it will go down. In order to mitigate these kind of risks, following actions can be sken as per the situations 1) Dollar price would go down or depreciate in future. For example, if presently, Euro $1.10 and the revenue which could have been earned by the US exporter, for exporting goods worth S300000, had been $330000 (53000001.10) and if the value of dollar will go down to $1.20, the me revenue will be S160000 (5300000 1.20) which will be profitable for the exporter as he can make a profit of around 10000 0 000-5330000) 2) If Dollar price would go up er appreciate in future. For example, if presently. I Euro-S1.10 and the revenue which could have been comed by the US exporter, for exporting goods worth 100000, had been $130000 5 0000 110) and if the value of dollar will go up to SIOS, the sand revenue will be $324000 53000001.08), which will be lower than what he could have earned if dollar valse had gone down (mentioned in paint above although still profitable Therefore, in such case when there are probability of dollar value going down in future, the trader should go for short position in currency future so that he can take long position in future when there are chances of dollar value to go up. If the trader go for short position at 1.232 with contract size 125000, and the underlying future price for June while liquidating the position is 1.214, he would incur a loss (1.232- 1.2140125000 250 Euro ANSWER (b)- Options are another type of derivative where there are some rights to buy or sell ulike futures where there is always an obligation to exercise the same. There are 2 types of ptions- 1) CALL OPTION- This option has 2 parties viz., Call Buyer and Call Seller Call Buyer buys the underlying asset whereas call seller sells the underlying asset Call Buyer has the right to either puy the underlying asset by exercising his option or not whereas call seller has an obligation to sell or not (depending upon whether call buyer exercises his option or not. Call Buyer always has to a ray a minimum amount as a "Prew to the call eller irrespective of his decision to exercise his option which is his minimum loss. Now, Call Buyer will always exercise his option when he finds that the strike or exercise price is less than the sport price because in that case, the call buyer will Fave to pay less to buy a security at lower price than the spot or market price and the same would be considered "In The Money" for Call Buyer and vice versa. 2) PUT OPTION. This option also has 2 parties viz. Put Buyer and Put Seller. Put Buyer sells the underlying asset whereas put seller buys the underlying asset. Put Buyer has right to either sell the underlying asset by exercising his option or not whereas put seller has an obligation to buy or not depending upon whether put buyer exercises his option or not). Put Buyer always has to pay a minimum amount as a "prw t o put seller irrespective of his decision to exercise his option which is his minimum loss. Now. Put Buyer will always exercise his option when he finds that the arike or exercise price is higher than the spot price because in that case, the pul buyer can cam more by selling the security at higher price than the spot or market price and the same would be considered "In The Money for Put Buyer and vice versa. In the above chart IN THE MONEY SITUATIONS STRIKE PRICE CALL OPTION PUT OPTION 12100 when sport price > 12100 when sport price 12400 when sport price 12500 when sport price C1.22725 + 1.23295)/2= 1.2301 b. Form the table above, list which options are in the money (both call and puts) kelt(/6) Call 121 Tn i 1.22 1.24 In the money out of the Money In the madey out of the Money Tout of the money in the money out of the money In the monly ] c. Make a profit chart based on your futures position, from part a, and label the graph. d. Instead of futures if you purchase an option contract, what option will you purchase? Assume you purchase June call/put with a K = 12200 c/100C. What is your profit or loss from this trade, assuming the underlying future price is 1.25$/? d. Make a profit chart based on your option position (from part d) and label the graph. (in the money, out of the money, break even.) Q1. Low Futures Contract: April, 22, 2018: Euro Contract Size 125,000 . Price Quote S/ Contract Last Open High E6Y00 (Cash) 1.22034 1.22650 1.22894 E6K18 (May '18) 1.22410 1.22995 1.23035 E6M18 (Jun '18) 1.22725 1.23295 1.23390 E6N18 (Jul '18) 1.23050 1.23630 1.23630 1.22025 1.22225 1.22515 1.22840 Options Contract: April 22, 2018: Euro Contract Size 125,000 Strike (/100) 12100 12200 12400 12500 Call Premium (S/E) May June July 0.0239 0.0265 0.0363 0.0151 0.0191 0.0286 0.0080 0.0130 0.0161 0.0036 0.0084 0.0116 Put premium (SE) May June July 0.0007 0.0033 0.0042 0.0019 0.0059 0.0064 0.0248 0.0197 0.0138 0.0303 0.0251 0.0202 a. Refer to April 2018 Euro contract in the above table. You are expecting US dollar to decrease in value with the new traffic on exports. What position you take in the June 18 futures market? If you bought/sold at the settlement price and you liquidated the position when the underlying future price for June is 1.2345/. What is your profit or loss from this trade? Assume you sold only one futures contract and ignore brokerage fee. * me on le dollow Mut denne. evro contrast, siree yu expect the US. *Profit of Trade (1.234-1.2301). 12500 Euro 487.5) future settlement prices (1.22725 + 1,23795)/2: 1.2301 b. Form the table above, list which options are in the money (both call and puts) nikelt/ Call Put In the money out of the Money In the money out of the Money out of le money in the Manly Tout of the money in the monty 1-21 1.25
