Q7

Question 7 (10 marks) a) Explain the differences between the buyer of a call option and the sell of a call option. (2 marks) b) An investor buys a put option with a strike price of $45 for $6. What is the investor's maximum gain and maximum loss? (2 marks) c) In January, an investor enters into a long futures contract to buy 100 oz of gold at $1,860 per oz in April. What would be the investor's gain or loss if the price of gold is as follows in April? i) $1,950 per oz (1 mark) $1,750 per oz (1 mark) ii) d) You own a call option on a Brambles share with an exercise price of $12. The option will expire in exactly six months' time. i) If the share is trading at $9 in six months, what will be the payoff of the put? (1 mark) ii) If the share is trading at $18 in six months, what will be the payoff of the put? (1 mark) iii) Assuming that the option costs $0.50, draw a profit diagram showing the profit of the put as a function of the share price at expiration. (2 marks)