Hi
With regards to this question,
The premium on the options is given in annual %.
The options are only needed for 6 months.
The answer that has been given takes the full premium for the whole annual %.
What is the reason why we have to pay the premium for the whole year despite only needing the option for half of the year?
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Massie Sep Dec 15- BPP kit qn 46
7y ago#1The premiums are always stated in the table as annual percentages.
However the amount of the premium is always calculated for 3 months because they are always options on 3 month futures.
That is where the $25 tick value comes from for 1 tick movement on 1 contract:
1,000,000 x 0.01% x 3/12 = $25.
Again, I explain all of this in my free lectures (and also why I never bother using ticks - you don't need to use them in the exam and it doesn't make it any easier :-) )
Thanks! that explains it!
7y ago#3You are welcome :-)
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