In: Finance
Suppose that you know today that you will be purchasing a pen of segregate early weaned pigs a few months from now and that you will need 10,000 bushels of corn for feeding purposes. Additionally, you know that given the current corn cash price of $2.35/bu., you have the potential to feed-out these pigs for a profit. However, you are concerned that the corn price may move against you before you purchase the hogs. You purchase a $2.55/bu. call option for $0.30/bu. and expect the basis to be $0.05 under. When you are ready to purchase the hogs and corn to make feed, the cash and futures prices have increased to $3.00/bu. and $3.05/bu., respectively. Assuming zero time value and that the broker charges a commission of $50 per option traded, answer the questions below.
Rate | Amount | |
Bushels | 10000 | |
Strike price | 2.55 | 25500 |
Spot price | 3 | 30000 |
Premium paid | 0.3 | 4500 |
Commission | 50 | |
Net profit | 1450 |
Rate | Amount | |
Bushels | 10000 | |
Strike price | 2.55 | 25500 |
Spot price | 3 | 30000 |
Premium paid | 0.3 | 4500 |
Commission | 50 | |
Net profit | 1450 |