An August CDD Weather Option Is Offered on the Cumulative

question 4

Multiple Choice

An August CDD weather option is offered on the cumulative monthly CDD at an Atlanta weather station. An investor has a long call with a strike price of 375 and a short call with a strike price of 400. The payment is $10,000 per degree day. What is the maximum payoff?

• A) $500,000
• B) $250,000
• C) $100,000
• D) $50,000