Sep/Dec 2015 Q2 Armstrong group Part b

hi sir,

my question is mainly conceptual.

whilst calculating the Collar i came up with the combination , that if the interest rate decreases to 0.5% if the future price we calculated is, 96.74 for the exercise price of 97.

then i chose to “exercise ” the option as at 30 Nov,

selling at 97 and buying at 96.74 would potentially give a profit of

(97-96.74)/400 X 50 X 1000,000 = 32500.

in the actual answers they have chosen to sell 96.50 .and also got a loss on this exercise.

i am a bit confused regarding this. could you please point out why my answer is wrong and how assuming ive derived a profit of 32500 is actually wrong.

#2) second and last question is

i do keep the article on Collar and most of the ot notes handy and mainly learnt from here. but maybe i mis-learned something so have some major confusion regarding one thing.

when there is a Receipt,

we would buy a futures option to Buy (call option ) on the exercise date .
hence on the date of the exercise we will BUY the option on the exercise price on that date and SELL on the futures price we calculated using the basis.

and if there is a Payment

it would be vice versa,
so we would SELL on the exercise price on the exercise date and so on.

please if you would kindly correct me if im wrong.

thank you very very much alot indeed.
bye