Calculate the minimum expected selling price

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Reference no: EM132007381

1. For the following options on Dec 18 corn futures, calculate the breakeven point and draw the pay-off diagram. (Note: Assume there is a $0.01 broker’s commission)

a) Writing a put with a $4.00 strike price and a premium of $0.27

b) Holding a put with a $4.00 strike price and a premium of $0.27

c) Writing a call with a $4.10 strike price and a premium of $0.18

d) Holding a call with a $4.10 strike price and a premium of $0.18

2. A soybean farmer is hedging production using a fence composed of the two following options positions on Nov 18 soybean futures:

Holding a put with a $10.00 strike price and a premium of $0.39

Writing a call with a $11.20 strike price and a premium of $0.29

(Note: Assume there is a $0.01 broker’s commission, an expected basis of -$0.55, and a current futures price of $10.30)

a) Calculate both the minimum expected selling price and maximum net selling price of the fence.

b) Draw the pay-off diagram for the fence described above.

Reference no: EM132007381

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