Question

Question 5

Suppose that a September put option with a strike price of $95 costs $10.0. Under what circumstances will the seller (or writer) of the option earn a profit? Let S equal the price of the underlying.

S > 85.0

S < 105.0

S < 95  

S > 95

Question 6

Suppose you enter into a short position to sell March Gold for $255 per ounce. The contract size is 100 ounces, the initial margin is $2550 and the maintenance margin is $1020. At what price will you receive a margin call?

254.93

270.3

255.07

239.7

Question 7

Suppose that on October 24 you buy 12 March gold futures contracts for $250 per ounce. At 11:00 am on October 25 you buy 10 more contracts for $245.5 ounce. At the close of trading on October 25, gold futures settle for $239.0 ounce. If the contract size is 100 ounces and the initial margin equals 2500, how much do you gain or lose as of the close?

-6700.0

-19700.0

19700.0

6700.0

Question 8

Suppose that on October 24 you Sell 8 March gold futures contracts for $345 per ounce. At 11:00 am on October 25 you buy 5 March contracts for $347.0 ounce. At the close of trading on October 25, gold futures settle for $348.0 ounce. If the contract size is 100 ounces and the initial margin equals 3450, how much do you gain or lose as of the close?

-1900.0

1900.0

100.0

-100.0

Answer 1

Question 5

The seller of a put option will earn profit as long as the stock price stays above the (strike price - put option price) at expiry

X = $95

P = $10

Short option seller profits as long as, S > (X - P)

S > (95 - 10)

S > $85.0

Question 6

The margin call occurs when the loss is more than the difference between the initial margin and the maintenance margin.

When loss > (2,550 - 1,020)

When loss > 1,530, the margin call gets generated.

This loss occurs when the price of gold increases by 1,530/100 = $15.3 per ounce

That is margin call gets generated when the price goes above 255 + 15.3 = $270.3

Option B is correct

Question 7

Total number of contracts, n = 12 + 10 = 22

The average buy price = (250 * 12 + 245.5 * 10)/22

The average buy price = $247.9545454545 per contract

The selling price = 239.0

Profit = (Selling price - average purchse price) * Number of contracts * contract size

Profit = (239 - 247.9545454545) * 22 * 100

Profit = -19,699.9999999

Profit = -$19,700

Option B is correct

Question 8

We close the first five contracts for a loss of (347 - 345) = $2 or 2 * 5 * 100 = $1000 loss

We close the last three contracts for a loss of (348 - 345) = $3 or 3 * 3 * 100 = $900 loss

Total loss = 1000 + 900 = 1,900

Option a is correct: -1,900