You have some cattle you are finishing and will be selling them in April 2020. April 2020 live cattle futures are trading at 126.250/cwt. You are looking at premiums on options and debating whether to use some options. A 122 Apr 20 Lives Cattle put is trading at 3.125 and a 122 Apr 20 Live Cattle call is trading at 6.350. A 130 Apr 20 Live Cattle put is trading at 6.500 and a 130 Apr 20 Live Cattle call is trading at 2.775. You expect basis will be 5.00 under when you sell your cattle. You purchase the 130 Apr 20 Live Cattle put.

1. Calculate the price floor you set when you purchased the put.

2. Suppose the April 2020 live cattle futures are trading at 132.000 when you sell your cattle and basis is 5.00 under. Will you exercise your put? Why or why not?

c. Calculate your net selling price.