Suppose you had inside information on Covid-19 and was bearish on the market and decided to sell one Dow Futures E-Mini contract when the futures price was where it is at point A = 29,000. The margin requirement is $5,390 and the multiplier is 5. If you close at point B your rate of return would be over 800% Answer T for true and F for false. Dow Mini Dec. 2020 30,000 A = 29,000 29,000 28,000 27,508 27,000 MW C = 26,000 26,000 25,000 24,000 wait to that 23,000 22,000 B = 21,000 21,000 20,000 19,000 18,000 Dec '19 Jan 20 Feb 20 Mar '20 Apr 20 May 20 Jun 20 Jul 20 Aug 20 Sep 20 Oct20 So you are chatting with a friend who is in econ 351. You are bragging about all the money you made with your short position on the market (from point A to B) and he/she suggests that you buy insurance to protect your gains...... that is, he/she suggests that you hedge your short position. Note that futures options, both calls and puts are available on this futures contract. Suppose that we hedge our existing short position by buying one FO call at point B with a strike price of 21,000 for $5,000 ($5,000 is the price of the FO call). We now consider the move from point B to point C, where the futures price of the Dow Futures E-Mini goes from 21,000 (point B) to 26,000 (point C). We assume 26,000 is the futures price at expiration. Your total profit given your short bet and your hedge is . Please, no $ signs and no commas - so if the profit is $30,000 please type in 30000, not $30,000, not 30,000. Thanks and please take care here. Please use the graph below to answer the following questions. + D B 21,000 A Futures price @expiration 26,000 29,000 BE point The breakeven point for the futures options call is . Please, no $ signs and no commas - so if the BE point is 23,000 please type in 23000, not 23,000. Thanks and please take care here. The profit associated with point B is Please, no $ signs and no commas so if the profit is $30,000 please type in 30000, not $30,000, not 30,000. Thanks and please take care here. The profit associated with point C is Please, no $ signs and no commas so if the profit is $30,000 please type in 30000, not $30,000, not 30,000. Thanks and please take care here. The profit associated with point D is Please, no $ signs and no commas so if the profit is $30,000 please type in 30000, not $30,000, not 30,000. Thanks and please take care here. When the Dow mini fell to 21,000, your friend from econ 351 told you to hedge by buying a futures option call with a strike price of 21,000. Another hedge would have been to write a futures option put with a strike price of 21,000. The premiums on either the call or put are $5,000 each. Consider the graphic below. + A Futures Price @ Expiration 21,000 E The futures price at expiration at point E is . Please, no $ signs and no commas so if the futures price at expiration is 23,000 please type in 23000, not 23,000. Thanks and please take care here. Suppose you had inside information on Covid-19 and was bearish on the market and decided to sell one Dow Futures E-Mini contract when the futures price was where it is at point A = 29,000. The margin requirement is $5,390 and the multiplier is 5. If you close at point B your rate of return would be over 800% Answer T for true and F for false. Dow Mini Dec. 2020 30,000 A = 29,000 29,000 28,000 27,508 27,000 MW C = 26,000 26,000 25,000 24,000 wait to that 23,000 22,000 B = 21,000 21,000 20,000 19,000 18,000 Dec '19 Jan 20 Feb 20 Mar '20 Apr 20 May 20 Jun 20 Jul 20 Aug 20 Sep 20 Oct20 So you are chatting with a friend who is in econ 351. You are bragging about all the money you made with your short position on the market (from point A to B) and he/she suggests that you buy insurance to protect your gains...... that is, he/she suggests that you hedge your short position. Note that futures options, both calls and puts are available on this futures contract. Suppose that we hedge our existing short position by buying one FO call at point B with a strike price of 21,000 for $5,000 ($5,000 is the price of the FO call). We now consider the move from point B to point C, where the futures price of the Dow Futures E-Mini goes from 21,000 (point B) to 26,000 (point C). We assume 26,000 is the futures price at expiration. Your total profit given your short bet and your hedge is . Please, no $ signs and no commas - so if the profit is $30,000 please type in 30000, not $30,000, not 30,000. Thanks and please take care here. Please use the graph below to answer the following questions. + D B 21,000 A Futures price @expiration 26,000 29,000 BE point The breakeven point for the futures options call is . Please, no $ signs and no commas - so if the BE point is 23,000 please type in 23000, not 23,000. Thanks and please take care here. The profit associated with point B is Please, no $ signs and no commas so if the profit is $30,000 please type in 30000, not $30,000, not 30,000. Thanks and please take care here. The profit associated with point C is Please, no $ signs and no commas so if the profit is $30,000 please type in 30000, not $30,000, not 30,000. Thanks and please take care here. The profit associated with point D is Please, no $ signs and no commas so if the profit is $30,000 please type in 30000, not $30,000, not 30,000. Thanks and please take care here. When the Dow mini fell to 21,000, your friend from econ 351 told you to hedge by buying a futures option call with a strike price of 21,000. Another hedge would have been to write a futures option put with a strike price of 21,000. The premiums on either the call or put are $5,000 each. Consider the graphic below. + A Futures Price @ Expiration 21,000 E The futures price at expiration at point E is . Please, no $ signs and no commas so if the futures price at expiration is 23,000 please type in 23000, not 23,000. Thanks and please take care here
