You believe that oil prices will be rising more than expected and that rising prices will result in lower earnings for industrial companies that use a lot of petroleum-related products in their operations. You also believe that the effects on this sector will be magnified because consumer demand will fall as oil prices rise. You locate an exchange-traded fund, XLB, that represents a basket of industrial companies. You don’t want to short the ETF because you don’t have enough margin in your account. XLB is currently trading at $23. You decide to buy a put option
(for 100 shares) with a strike price of $24, priced at $1.20. It turns out that you are correct. At expiration, XLB is trading at $20. Calculate your profit.

  • CreatedApril 28, 2015
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