a. Suppose you enter into a short 6-month forward position at a forward price of $50. What

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a. Suppose you enter into a short 6-month forward position at a forward price of $50. What is the payoff in 6 months for prices of $40, $45, $50, $55, and $60?

b. Suppose you buy a 6-month put option with a strike price of $50. What is the payoff in 6 months at the same prices for the underlying asset?

c. Evaluating the payoffs of parts (a) and (b), which contract should be more expensive (i.e., the long put or short forward)? Why?

Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity.
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Derivatives Markets

ISBN: 9789332536746

3rd Edition

Authors: Robert McDonald

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