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  • In July, a small chocolate factory receives a large order for chocolate bars to be delivered in November. The spot price for Cocoa is $2,400 per metric ton. It will need 10 metric tons of Cocoa in September to fill this order. Because of limited storage capacity and volatility in the world cocoa prices, the company decides the best strategy is to buy 10 call options for $53 each with a strike price of $2,400 (equal to the current price) with a maturity date of September 2012. When the options expire in September, how much will the company pay (including the cost of the options) for cocoa if the spot price in September proves to be:
  • a) $2,300, and
  • b) $2,600? ($23,530, $24,530)
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Answer rating: 100% (QA)

Youy have call options Call options will be exercised only if price on ex... View the full answer