Alex has a long forward contract on 100 shares of a company, named ACE, with a strike
Question:
Alex has a long forward contract on 100 shares of a company, named ACE, with a strike price $200.
a. Suppose the spot price of the share at the maturity of the forward contract is $210. How can Alex trade ACE shares to make a profit? How much can he gain?
b. Suppose the spot price at maturity is $180 instead. How much does Alex lose from the forward contract?
Bob has bought a put option contract at $1 per share to sell 100 shares of ACE with a strike price $220.
a. Suppose the spot price of the share at the maturity of the option contract is $190. How can Bob trade ACE shares to make a profit? What is his gain from the option contract?
b. Suppose the spot price at maturity is $250 instead. Is it in Bob's interest to sell ACE shares at the strike price? What is Bob's loss from the option contract?