Business

Problem 1. What is the difference between a long position in a call option and a long forward contract?

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EXPERT ANSWER Following are the key differences between long position in call option and long forward contract: Long position in Call option A long call option gives the buyer or holder the right, but not the obligation, to buy an asset at a specific price on or before a specific date. A long call option …

Problem 1. What is the difference between a long position in a call option and a long forward contract? Read More »

A trader enters into a short cotton futures contract when the futures price is 50 cents per pound. The contract is for the delivery of 50,000 pounds. How much does the trader gain or lose if the cotton price at the end of the contract is (a) 48.20 cents per pound and (b) 51.30 cents per pound?

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A trader enters into a short cotton futures contract when the futures price is 50 cents per pound. The contract is for the delivery of 50,000 pounds. How much does the trader gain or lose if the cotton price at the end of the contract is (a) 48.20 cents per pound and (b) 51.30 cents …

A trader enters into a short cotton futures contract when the futures price is 50 cents per pound. The contract is for the delivery of 50,000 pounds. How much does the trader gain or lose if the cotton price at the end of the contract is (a) 48.20 cents per pound and (b) 51.30 cents per pound? Read More »

what is the difference between a) entering into a long futures contract when the price is 50 and b)taking a long position in a call option with a strike price of 50

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what is the difference between a) entering into a long futures contract when the price is 50 and b)taking a long position in a call option with a strike price of 50 EXPERT ANSWER In case of a futures contract when the price is below 50 the long position would incur a loss of 50 …

what is the difference between a) entering into a long futures contract when the price is 50 and b)taking a long position in a call option with a strike price of 50 Read More »

An investor enters into a short forward contract to sell 100,000 British pounds for US dollars at an exchange rate of 1.4000 US dollars per pound. How much does the investor gain or lose if the exchange rate at the end of the contract is

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An investor enters into a short forward contract to sell 100,000 British pounds for US dollars at an exchange rate of 1.4000 US dollars per pound. How much does the investor gain or lose if the exchange rate at the end of the contract is (a) 1.3900 and (b) 1.4200? (c)Draw the investor EXPERT ANSWER …

An investor enters into a short forward contract to sell 100,000 British pounds for US dollars at an exchange rate of 1.4000 US dollars per pound. How much does the investor gain or lose if the exchange rate at the end of the contract is Read More »

#1. What is the difference between a long forward position and a short forward position? #2. Explain carefully the difference between hedging, speculation, and arbitrage. #3. Explain carefully the difference between selling a call option and buying a put option.

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EXPERT ANSWER Answers- # 1) In the long forward position an investor or the party agrees to buy the underlying asset at a specified price at a specified date whereas in the short position the investor or party agrees to sell the underlying asset at an agreed price at a specified date. # 2) Hedging …

#1. What is the difference between a long forward position and a short forward position? #2. Explain carefully the difference between hedging, speculation, and arbitrage. #3. Explain carefully the difference between selling a call option and buying a put option. Read More »

1.5. Suppose that you write a put contract with a strike price of $40 and an expiration date in three months. The current stock price is $41 and one put option contract is on 100 shares. What have you committed yourself to? How much could you gain or lose? 1.6. You would like to speculate on a rise in the price of a certain stock. The current stock price is $29 and a three-month call with a strike price of $30 costs $2.90. You have $5,800 to invest. Identify two alternative strategies. Briefly outline the advantages and disadvantages of each.

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EXPERT ANSWER If you write a put option you are committed to buying the shares at the strike price if the stock price drops below the strike price at expiry. The maximum gain a put option writer could gain is the amount of premium collected. This happens if the stock price ends above the strike …

1.5. Suppose that you write a put contract with a strike price of $40 and an expiration date in three months. The current stock price is $41 and one put option contract is on 100 shares. What have you committed yourself to? How much could you gain or lose? 1.6. You would like to speculate on a rise in the price of a certain stock. The current stock price is $29 and a three-month call with a strike price of $30 costs $2.90. You have $5,800 to invest. Identify two alternative strategies. Briefly outline the advantages and disadvantages of each. Read More »

A trader enters into a short cotton futures contract when the futures price is 50 cents per pound. The contract is for the delivery of 50,000 pounds. How much does the trader gain or lose if the cotton price at the end of the contract is (a) 48.20 cents per pound and (b) 51.30 cents per pound?

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A trader enters into a short cotton futures contract when the futures price is 50 cents per pound. The contract is for the delivery of 50,000 pounds. How much does the trader gain or lose if the cotton price at the end of the contract is (a) 48.20 cents per pound and (b) 51.30 cents …

A trader enters into a short cotton futures contract when the futures price is 50 cents per pound. The contract is for the delivery of 50,000 pounds. How much does the trader gain or lose if the cotton price at the end of the contract is (a) 48.20 cents per pound and (b) 51.30 cents per pound? Read More »

An investor enters into a short forward contract to sell 100,000 British pounds for US dollars at an exchange rate of 1.4000 US dollars per pound. How much does the investor gain or lose if the exchange rate at the end of the contract is

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An investor enters into a short forward contract to sell 100,000 British pounds for US dollars at an exchange rate of 1.4000 US dollars per pound. How much does the investor gain or lose if the exchange rate at the end of the contract is (a) 1.3900 and (b) 1.4200? (c)Draw the investor EXPERT ANSWER …

An investor enters into a short forward contract to sell 100,000 British pounds for US dollars at an exchange rate of 1.4000 US dollars per pound. How much does the investor gain or lose if the exchange rate at the end of the contract is Read More »

1. What is difference between entering into a long forward with forward price $50 and taking a long position in a call option with strike price of $50?2. What kind of beliefs about the market (Google stock) do you need to have in order to buy a3 months call option on Google stock?3. What kind beliefs about Apple stock do you need in order to buy a 3 months put option contract on Apple stock?

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1. What is difference between entering into a long forward with forward price $50 and taking a long position in a call option with strike price of $50? 2. What kind of beliefs about the market (Google stock) do you need to have in order to buy a3 months call option on Google stock? 3. …

1. What is difference between entering into a long forward with forward price $50 and taking a long position in a call option with strike price of $50?2. What kind of beliefs about the market (Google stock) do you need to have in order to buy a3 months call option on Google stock?3. What kind beliefs about Apple stock do you need in order to buy a 3 months put option contract on Apple stock? Read More »

Problem 1.1 What is the difference between a long forward position and a short forward position? Problem 1.2 Explain carefully the difference between hedging, speculation, and arbitrage Problem 1.3 What is the difference between entering into a long forward contract when the forward price is $50 and taking a long position in a call option with d strike price of $50? Problem 1.4 Explain carefully the difference between selling a call option and buying a put option. Problem 1.5. An investor enters into a short forward contract to sell 100,000 British pounds for US dollars at an exchange rate of 1.4000 US dollars per pound. How much does the investor gain or lose if the exchange rate at the end of the contract is (a) 1.3900 and (b) 1.4200? Problem 1.6 A trader enters into a short cotton futures contract when the futures price is 50 cents per pound. The contract is for the delivery of 50,000 pounds. How much does the trader gain or lose if the cotton price at the end of the contract is (a) 48.20 cents per pound; (b) 51.30 cents per pound? Problem 1.7 Suppose that you write a put contract with a strike price of $40 and an expiration date in three months. The current stock price is $41 and the contract is on 100 shares. What have you committed yourself to? How much could you gain or lose?

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EXPERT ANSWER 1.1 The Difference between the Long Forward position and Short Forward position is only buying and selling. In case of long forward position the buyer agrees to buy the underlying asset at a specified future date for a specified price. where as the in case of short forward position the seller agrees to sell the underlying asset …

Problem 1.1 What is the difference between a long forward position and a short forward position? Problem 1.2 Explain carefully the difference between hedging, speculation, and arbitrage Problem 1.3 What is the difference between entering into a long forward contract when the forward price is $50 and taking a long position in a call option with d strike price of $50? Problem 1.4 Explain carefully the difference between selling a call option and buying a put option. Problem 1.5. An investor enters into a short forward contract to sell 100,000 British pounds for US dollars at an exchange rate of 1.4000 US dollars per pound. How much does the investor gain or lose if the exchange rate at the end of the contract is (a) 1.3900 and (b) 1.4200? Problem 1.6 A trader enters into a short cotton futures contract when the futures price is 50 cents per pound. The contract is for the delivery of 50,000 pounds. How much does the trader gain or lose if the cotton price at the end of the contract is (a) 48.20 cents per pound; (b) 51.30 cents per pound? Problem 1.7 Suppose that you write a put contract with a strike price of $40 and an expiration date in three months. The current stock price is $41 and the contract is on 100 shares. What have you committed yourself to? How much could you gain or lose? Read More »