Journal of Futures Markets

Running head: FINANCE CASE 2: OPTIONS CASE
Finance Case 2: Options Case
Name of the Student:
Name of the University:
Author Note

1FINANCE CASE 2: OPTIONS CASE
Table of Contents
Answer to 1:...............................................................................................................................2
Answer to 2:...............................................................................................................................2
Answer to 3:...............................................................................................................................2
Answer to 4:...............................................................................................................................3
Answer to 5:...............................................................................................................................5
Answer to 6:...............................................................................................................................5
Answer to 7:...............................................................................................................................6
Answer to 8:...............................................................................................................................6
Answer to 9:...............................................................................................................................7
Answer to 10:.............................................................................................................................7
Answer to 11:.............................................................................................................................8
Answer to 12:.............................................................................................................................9
References and Bibliography:..................................................................................................10

2FINANCE CASE 2: OPTIONS CASE
Answer to 1:
Call and put options relatively different from future and forward contracts as it allows
the investors to appropriately their investments using premium payments. Option contracts
require less capital for investment in comparison to both future and forward contracts.
Moreover, investors can use the option contract to minimise the negative impact of price
action regardless of the price movement trend. Thus, it is detected that with options contract
the investors could sell and buy investments with a particular strike price (Kalay, Karakaş
and Pant 2014).
Answer to 2:
The information in table 1 row 2 directly provides details regarding the strike price,
last price, change, bid, ask, volume and open interest of the contract. Moreover, strike price is
considered as the price at which the holder of an option can buy or sell the contract. Last
price is the value of the call option that has been traded in the capital market, while change is
the overall gain or loss in value of contract in the current date in comparison to previous date.
Bid price is what buyers are willing to pay, while Ask price is the value at while sellers are
willing to sell the contract. Volume is the total number of contracts that has been traded in the
exchange on the particular day, while open interest is the number of contracts or
commitments outstanding in options trading (Kelly, Pastor and Veronesi 2016).
Answer to 3:
The risk attribute of the overall investment can be minimized by utilizing the call
option to hedge the portfolio against any drop in Suncor share price. Aunt Betty should sell
the call option at the strike price of 42, as it would directly help in reducing the level of losses
that could be incurred if the prices of the shares drop further down from the current price
level. The selling of the call option would directly provide benefits, if the overall share price

3FINANCE CASE 2: OPTIONS CASE
Strike price
Breakeven
Profit
decline, while increment in share price will lead to loss. However, the loss would be adjusted
with the benefits from the actual shares, which would fix the costing of shares at 42 (Seo and
Wachter 2019).
Answer to 4:
Long position:
Short position: