1 / 27

Study Guide AGR 420 Final Exam

Study Guide AGR 420 Final Exam. TYPES OF OPTIONS CALL OPTION A CONTRACT WHICH GIVES THE PURCHASER THE RIGHT TO BUY A COMMODITY FUTURES CONTRACT AT A FIXED PRICE UNTIL A SPECIFIED DATE.

ria-phelps
Download Presentation

Study Guide AGR 420 Final Exam

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Study GuideAGR 420Final Exam

  2. TYPES OF OPTIONS CALL OPTION A CONTRACT WHICH GIVES THE PURCHASER THE RIGHT TO BUY A COMMODITY FUTURES CONTRACT AT A FIXED PRICE UNTIL A SPECIFIED DATE.

  3. PUT OPTIONA CONTRACT THAT GIVES THE PURCHASER THE RIGHT TO SELL A COMMODITY FUTURES CONTRACT AT A FIXED PRICE UNTIL A SPECIFIED DATE.

  4. CONSIDER THE PREMIUM MADE UP OF TWO PARTS:INTRINSIC VALUE TIME VALUE

  5. FACTORS THAT INFLUENCE TIME VALUE:TIME TO EXPIRATIONVOLATILITY

  6. SPECULATION USING OPTIONS:FOR THE BUYER THE POTENTIAL LOSSES ARE LIMITED TO THE PREMIUM

  7. SPECULATION USING OPTIONS:SELLERS MUST DEPOSIT MARGIN, LOSS POTENTIAL IS UNLIMITED

  8. HOW ARE OPTION POSITIONS OFFSET?A BUYER CAN EXERCISEA BUYER CAN SELL AN IDENTICAL OPTIONA BUYER CAN LET THE OPTION EXPIRE

  9. BUY A PUT TO LOCK IN A MINIMUM PRICENOV FUTURES = $5.515.50 NOV PUT = .43TYPICAL BASIS AT HARVEST = - .25MINIMUM PRICE = 5.50 -.25 BASIS -.43 PREMIUM---------$4.82

  10. IF NOVEMBER SOYBEANS ARE AT $4.50THE INTRINSIC VALUE OF THE OPTION WILL BE = $1.00 IF BASIS IS -$ .25/BU THEN THE CASH PRICE WILL BE $4.25/BU PLUS $1.00 INTRINSIC VALUE MINUS THE PREMIUM OF $-.43 THE NET PRICE IS $4.25 + $1.00 - $ .43 = 4.82

  11. IF THE PRICE OF NOVEMBER SOYBEANS IS = $7.50AND BASIS IS -.25THEN THE CASH PRICE IS $7.25THE OPTION HAS NO INTRINSIC VALUE AND THE FARMER WILL LOSE THE PREMIUMNET PRICE IS =$7.25 - .43 = $6.82/BU

  12. WHAT IS THE DELTA OF AN OPTION ?CHANGE IN PREMIUM/CHANGE IN UNDERLYING FUTURES

  13. BUY A CALL TO LOCK IN MAXIMUM PRICEFOR AN INPUTDEC CORN FUTURES = $2.202.20 DEC CALL = $ .16TYPICAL BASIS AT HARVEST = - .15MAXIMUM PRICE = 2.20 -.15 BASIS +.16 PREMIUM---------$2.21

  14. STOCK INDEX FUTURES

  15. S&P 500 500 LARGECAP COMPANIES The S&P 500 is capitalization-weighted, representing the market value of all outstanding common shares of the firms listed (share price x shares outstanding). This means that a change in the price of any one stock influences the index in proportion to the relative market value ofthat firm's outstandingshares.

  16. WHO MIGHT USE STOCK INDEX FUTURES?SPECULATORS--YOU ARE TRADING A GROUP OF STOCKS NOT JUST A SINGLE STOCKPORTFOLIO MANAGERS WOULD USE THESE INDEXES.

  17. INTEREST RATE FUTURES

  18. TREASURY BILLAN OBLIGATION OF THE U.S. GOVERNMENT TO PAY A FIXED AMOUNT – FACE VALUE– AT MATURITYMATURITY:THREE MONTHSIX MONTH 12 MONTH

  19. LONG TERM INTEREST RATESMOST IMPORTANT IS THE TREASURY BONDS TRADE AT THE CBOT10 TO 30 YEAR BONDS$100,000 FACE VALUE WITH A ANNUAL 6% COUPON

  20. CURRENCY FUTURES

  21. MAJOR CURRENCIES TRADED:EURO FXJAPANESE YENCANADIAN DOLLARSWISS FRANCBRITISH POUNDMEXICAN PESO

  22. LETS SAY YOU ARE A EUROPEAN LIVESTOCK FEED MANUFACTURETHE CURRENT PRICE FOR CORN AT ROTTERDAM FOR JULY DELIVERY IS $150/TON($3.75/BU)TO CONVERT TO EUROS IT WOULD BE $150/TON(1 € TO 1.2 $)ONE METRIC TON OF CORN WOULD COST THE BUYER 125 €

  23. HE WOULD NEED TO SELL A EURO CONTRACT (ESSENTIALLY BUY DOLLARS) TO PROTECT FROM A DECLINE IN THE VALUE OF THE EURO

More Related