You believe that oil prices will rise more than expected and that these rising prices will result in lower profits for industrial companies that use many oil$-$related products in their operations. In addition, he believes that the effects on this sector will increase because consumer demand will fall with the rise in prices. You find an exchange$-$traded fund, XLB$,$ that represents a group of industrial companies. You don't want to short the ETF because you don't have enough margin in your account. XLB is currently trading at $$23.$ You decide to purchase a put option $($for $100$ shares$)$ with a strike price of $$24,$ valued at $$1\mathrm{.}20.$ It turns out that you are right. At expiration, XLB is trading at $$20.$ Calculate your benefits.

XLB: Materials$$$$23\mathrm{.}00$

Buy options Put options

Price of Price of

exercise Maturity Price exercise Maturity Price

$$20$ November $$0\mathrm{.}25$ $$20$ November $$1\mathrm{.}55$

$$24$ November $$0\mathrm{.}25$ $$24$ November $$1\mathrm{.}20$

P$14\mathrm{.}7$ Go to the XLB table in Problem $14\mathrm{.}6.$ What happens if you are wrong and the price of XLB rises to $$25$ on the expiration date?