a) A trader writes (i.e. sells) two calls with strike = $41 costing $5 each. He simultaneously goes long on 3 puts with strike = $45 and costing $7 each.
Both expire in 6 months. If the spot price at expiration is $ 43.50 and the interest rate is 6% per annum (continuous), what is the trader's profit or loss?
b) A trader sells three calls with strike = $50 and buys two puts with same expiration but strike = $55.00 Put premium is $2 per option. If the spot price at expiration is $ 52.00, what should the call premium for each option be if he is to break even? Ignore interest effects
c) A refinery buys crude to produce gasoline. The firm needs 3000 barrels of crude to produce gasoline. One barrel of crude produces 0.3 barrels of gasoline. The firm the firm uses crude oil and gasoline futures to hedge its risk.
The firm enters into crude futures with a futures price of $ 70 per barrel and gasoline futures at futures price of $ 245 per barrel.
When the hedge ends the spot price of crude is $69.25 and that of gasoline is $250 per barrel. What is its profit or loss on the entire futures position?