a) A loss of $7,687.50
b) A loss of $4,375.00
c) A gain of $4,375.00
d) A loss of $3,312.50
The correct answer is: a)
Rule for a long call position:
If at expiry, the asset price settles below the expiry price, Do Not Exercise.
Therefore, the loss = premium.
Premium = ($1.23/barrel)*(250 barrels per contract)*(25
call contracts) = $7,687.50
2006 CFA Level 1 LOS: 16.74.a
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