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Determine the profit or loss if the option is exercised

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Reference no: EM132581855

Question 1: Assume that Mr. Binda is a speculator who buys a 90-day British pound option with a strike price of $27.02. Assume one option contract specifies 10,000 units and the current spot price as of date is $26.87. Mr. Binda pays premium of $0.05 per unit for the call option and no other charge (such as brokerage fee). Just on expiration date, the spot rate of a pound reaches $27.18.

Required

a) Determine the profit or loss if the option is exercised

b) Determine the value of the call option if the option is exercised

Question 2: Suppose that Mr, Binda buys a three-month 5,000 contract to buy "commodity-X' at a futures price of 1,0000 from Mr. John. The contract requires an initial margin of $70 per contract and maintenance margin of $40 per contract.

Required

a) Compute the initial margin that both Mr. Binda must deposit to the clearing house.

b) Compute the maintenance margin that both Mr. Binda must deposit to the clearing house.

Reference no: EM132581855

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