Suppose an Investor Buys a Call Option on 45,000 Barrels

question 38

Multiple Choice

Suppose an investor buys a call option on 45,000 barrels of oil with an exercise price of $51 per barrel and simultaneously sells a put option on 45,000 barrels of oil with the same exercise price of $51 per barrel. Her net payoff per barrel on these option contracts is ________ if the market price per barrel is $49 and ________ if the price per barrel is $55.

• A) −$4; $2
• B) −$2; $0
• C) $0; $2
• D) $0; −$4
• E) −$2; $4

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Definitions:

Warehouse Custodian

An entity responsible for the storage and security of physical goods in a warehouse.

Accounting Records

Documentation and books used in the preparation of financial statements, including ledgers, journals, and all relevant supporting documents.

Control Activity Over Cash

Procedures and policies implemented by a company to manage and monitor cash transactions and balances to prevent fraud and errors.

Pre-Signed Blank Cheques

A risky financial practice that involves signing a cheque before the amount payable is entered, leaving it vulnerable to fraud or misuse.