PROBLEM 6 (50 points) Suppose that you know today that you will be selling 15,000 bushels of corn a few months from now. Additionally, you know that given the current cash price of 52 35/bu. you have the potential to profit. However, you are concemed that the price may move against you. You purchase a $2.50/bu. put option for $0.20/bu, and expect the basis to be $0.05 under. When you are ready to sell the corn, the cash and futures prices have decreased to $215/bu, and $2.20/bu, respectively. Assuming zero-time value and that the broker charges a commission of S50 per option traded, answer the questions below. e. What is the number of option contracts needed to fully protect your 15,000 bushels? f. What is the total amount that you have to pay to purchase the necessary put options? 8 What is the basis equal to after the price change? h. Compute the target price. 1. Compute the gain/loss per bu. you have earned on options in terms of the premium as a result of price change, Compute the effective selling price (ESP), and by comparing it to your target price comment on whether it was a good deal. 1 k Compute the overall gain/loss as a result of dealing with the options accounting for a commission of $50 per option traded 1. Are you better/worse off as a result of dealing with options as opposed to not dealing with options at all, and why? m. Give an example of a futures price that would render your put option out-of-the-money