Alecto Co – Dec 2011

Hi,

re above question:

1. Under the premium calculation under the collar method at a stike price of 96 – why has the examiner decided to buy a put at 96 and sell a call at 96.5. I thought when calculating options – we must use the same strike price in which case:

Premium payable on put: 0.163/400*(37*1000) = 15
Premium receivable on call: 0.391/400*(37*1000) = 36.17
Net premium receivable: 21.16

2. In calculating the unexpired basis under the option method (in the event of an increase of 0.5%)

Theoretical futures price (100-3.3) = 96.70
Strike price 96.00

Unexpired basis: (0.7*2/6) = 0.233

Estimated future price in 4 months = (100-3.8-0.233) = 95.96

The examiner is still using the initial basis calculated under the futures method. Does the basis calculation I made make sense?

3. In the question we are given the tick size 0.01% and tick value $25.

I did not use the tick method when calculating the gain/loss on futures contracts:

I used (sell price-buy price)/400*(37*1000)

Does this suffice?

Sorry for bombarding you.

Thanks