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Suppose you sell a call option contract on April live cattle futures with a strike price of

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Suppose you sell a call option contract on April live cattle futures with a strike price of 130 cents per pound. Each contract is for the delivery of 40,000 pounds. What happens if the contract is exercised when the futures price is 135 cents?
Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity.
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In this case an amount 13513040000 2000 is subtracted ...View the full answer


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Prithwish Bandyopadhyay
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Options Futures and Other Derivatives

Options Futures and Other Derivatives

ISBN: 978-0134472089

10th edition

Authors: John C. Hull

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A call option is a type of financial contract that gives the holder the right, but not the obligation, to buy an underlying asset (such as a stock, commodity, or currency) at a specified price (called the strike price) within a specified period of time. When an investor purchases a call option, they are essentially betting that the price of the underlying asset will rise above the strike price before the option\'s expiration date. If the price of the asset does rise above the strike price, the investor can exercise the option by buying the asset at the strike price and then selling it at the higher market price, thereby earning a profit. Call options are often used as a speculative investment strategy, as they allow investors to potentially profit from the upward movement of an asset without having to actually own the asset itself. They are also commonly used as a hedging tool to protect against potential losses in a portfolio.

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