Your friend entered into some derivative contracts. She: Sold a 1 year ASX200 equity index futures contract
Question:
Your friend entered into some derivative contracts. She: Sold a 1 year ASX200 equity index futures contract at a price of 5,800 points, and then Bought a 1 year ASX200 equity index European put option contract at a strike price of 6000 points for a premium of 120 points. The current level of the equity index is 5,700. The following questions relate to the derivatives together as a portfolio. Question 2a (6 marks): Draw the option and future strategy on a graph below with profits on the y-axis and the underlying equity index on the x-axis. Mark every detail possible on the graph, including the strike prices, breakeven points, maximum possible loss and the current level of the equity index. Question 2b (1 marks): What is or are the break-even (zero profit) point(s)? Question 2c (1 marks): What is the maximum possible loss on this option strategy? Question 2d (1 marks): What is the maximum possible profit on this option strategy? Question 2e (1 marks): Will your friend make a large profit if the equity index rises, falls, or stays the same?
ISE Essentials Of Investments
ISBN: 9781265450090
12th International Edition
Authors: Zvi Bodie, Alex Kane, Alan Marcus