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Futures contracts have a commission of $0.01 per trade.
Futures Options (puts or calls) contracts have a $0.10 premium charge. Show work where appropriate.
It's November and Roarke decides to protect himself in the guinea pig futures market. Feb-1 futures prices are currently $21.50/pig and is local price is $20. He calls his broker and sells 500 February futures at $21.50. When it's time to buy an offsetting futures contract on Feb-1, futures are $24 and Local Price = $21. Do the math showing how this hedge works out. Keep in mind that Roarke already sold all his guinea pigs on the local market.
1. What is Roarke's nearby basis in November?
2. Calculate the outcome of Roarke's hedge to determine the profits or losses on the whole transaction.
3. Add any profits or losses from the hedge to Roarke's revenue from his local sales (calculated earlier) to determine a total revenue on this year's guinea pig crop.
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