How does the strategy perform as a risk management technique

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JONO has negotiated a put option contract for 250,000 ounces of gold at an exercise price of $290/oz. The seller of this put option charges an option premium of $20/oz, so that the total premium that UBSS pays is 5,000,000. Under the terms of the put option, JONO is entitled to sell the gold to the option writer at any time up to the maturity, which is in three months' time.

Problem 1: How does this strategy perform as a risk management technique, if three months' time the price of the gold is $270/oz.?

Problem 2: How does this strategy perform for JONO as a risk management technique, if three months' time the price of the gold is $315/oz.?

Reference no: EM132959339

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