Assuming you are a gold trader. You expect to buy 1,000 g of gold on 30...

Assuming you are a gold trader. You expect to buy 1,000 g of gold on 30 December. Since the gold price in the market is on an increasing trend, you decided to purchase a call option from a counterparty (call writer). The strike price of the gold is $235 per g and you will have to pay an option premium of $10 per g for this right.

a) Draw a diagram (graph) showing the variation of the trader’s profit with the gold price at the maturity of the option.

b) Let’s say you are a call writer instead of call buyer, how would your graph look like using the same information above?

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Expert Solution

jeff jeffy answered 1 year ago

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