10. assume you purchase 100 shares of stock at $44 per share and wish


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10. Assume you purchase 100 shares of stock at $44 per share and wish to hedge your position by writing a 100 share call option on your holdings. The option has a 40 strike price and a premium of 8.50. if the stock is selling at 38 at the time of expiration, what will be the overall dollar gain or loss on this covered option play?( consider the change in stock value as well as the gain or loss on the option) note that the stock does not pay a cash dividend.




In problem 10, what would be the overall gain or loss if the stick ended up at?


a.       $41


b.      $25


c.       $57


d.      $70








Farmer Tom Hedges anticipates taking 100, 00 bushels of oats to the markets in three months. The current cash price for oats is $2.15. He can sell a three-month futures contract for oats at 2.20. He decides to sell 10 5,000-bushel futures contracts at that price. Assume that in three months when farmer hedges takes oats to market and also closes out the futures contract (buys them back), the price of oats has tumbled to $2.03


A.      What is his total loss in value over the three months on the actual oats he produced and took to market?


B.      How much did his hedge in the futures market generate in gains?


C.      What is the overall net loss considering the answer in part A and the partial hedge in part B