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In option question we are given 3 exercise prices with little difference so while calculating outcome/result for each. Should we calculate “No of contracts” for each or for first price and assume other will be almost the same…….
Our lecturer told us to choose one only whose exercise price closest to futures price to minimize risk. To show the examiner we understand the topic, will be enough.
Hmmm but i think if we take average price and calculate number of contracts that would be acceptable also…
My assumption got basis, unlike yours. And in option market there are only standard exercise prices, you cannot average anyway.
You should not average the number of contracts.
You should do the whole thing properly for one exercise price, and as dazhong0703 said, that will get you most of the marks because you will have proved you know what you are doing. Any exercise price will do.
In an ideal world (if you have lots of time left 🙂 ) then you would try all the exercise prices and comment on the effect of each.
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