Assume that an OPEC meeting is coming up, and that there is reason to believe that the oil price will rise or fall sharply as a consequence of the decisions during the meeting. You therefore expect that the price for the share in a specific oil company (OljeAS) will go either above NOK 69 or below NOK 33 per share during the next 3 months. Today's share price is approx. NOK 50 per share. You want to speculate on this and have identified the following share options, all with identical expiration date / settlement date in three months and the factor «100 shares per option contract»:

CALL O90: call option OilAS, I = NOK 90, option premium NOK 0.50

CALL O60: call option OilAS, I = NOK 60, option premium NOK 5

PUT O40: put option OilAS, I = NOK 40, option premium NOK 5

PUT O10: put option OilAS, I = NOK 10, option premium NOK 1

a. How can you achieve your speculative desire using one or more of the four available options? Describe the transaction(s) that you are going to carry out (ie which option(s) you are buying and / or selling given your expectations), and briefly explain why the transaction(s) reflect your expectations.

b. What will be your loss / gain if the share price is NOK 80 on the expiration date? View your calculations. How will the result change if the option premium (s) of the option (s) you use double?

Answer rating: 100% (QA)

aIf the trader thinks that share price will go up he can buy Call Option at Strike NOK60 It will cos... View the full answer