Chapter 15. Other Derivative Assets. Outline. Futures options Pricing futures options Warrants Other derivative assets. Futures Options. Characteristics Speculating with futures options Spreading with futures options Basis risk with spreads Hedging with futures options
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.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.
Other Derivative Assets
February 10, 2004
Futures Options Prices
February 10, 2004
Money At Risk Example
In early September, a speculator anticipates lower demand for soybeans and anticipates a drop in the price of soybeans. She decides to buy a put option on soybean futures. Specifically, she purchases 3 APR 8300 puts at a listed price of 25.25 cents. The money at risk is
3 contracts x 5,000bu/contract x $0.2525/bu = $3,787.50
Consider MAR 8600 and 8700 calls on soybeans with settlement prices of 7 cents and 5 cents per bushel, respectively. The table on the next slide shows the profit and loss summary for a soybean bullspread.
Futures Settlement Price (cents per bushel)
William Bob operates a 1,500-acre farm in the midwest and plans on harvesting 50,000 bushels of soybeans. To hedge price risk, Bob could go short 10 soybean contracts, covering 50,000 bushels. However, to protect himself against unexpected problems with the crop (such as tornadoes), Bob could hedge by only going short 9 soybean contracts. This reduces the inconvenience and cost of having to either close out some contracts at a financial loss or acquire soybeans in the cash market to deliver against the short contracts.
Warrant value price Minimum
New York Stock Exchange Warrants
February 11, 2004