286 Chapter 6 Investments
- Scott took a short position for 500 ounces of July gold at $653.25 per ounce. He did not close the position prior to the
delivery date. In July, the spot price was $735.19.
a. Did Scott make or lose money on this deal?
b. Calculate the amount of his profi t or loss.
c. Assume the required initial margin was 5%. Calculate the initial margin.
d. Calculate Scott’s return as a percent.
e. Calculate Scott’s rate of return (as a simple interest rate), assuming his position was open for 63 days.- Kenny took a position short 10,000 pounds of February copper at $2.53 a pound. By December, the price of February
copper had risen to $2.85 a pound, and Kenny took a position long 10,000 pounds at this price.
a. Did Kenny make or lose money on this deal?
b. Calculate the amount of his profi t or loss.
c. Is it likely that Kenny got a margin call?
d. On the basis of these contracts, what will Kenny need to do when February arrives?- Leila took a position long 15,000 gallons of June unleaded gasoline at $1.83 per gallon. By May, the price of June
gasoline had risen to $1.92, and she took a position short 15,000 gallons at this price.
a. Did Leila make or lose money on this deal?
b. Calculate the amount of her profi t or loss.
c. Is it likely that Leila got a margin call?
d. On the basis of these contracts, what will Leila need to do when June arrives.- Suppose that I am long September orange juice and I decide I want to close my position. Describe what I need to do to
accomplish this.
C. Options Terminology
- Tracy believes that Zarofi re Systems stock will drop in value. Would she be more likely to buy a put or a call on this
stock? - Dom thinks that Triloquant Logistics Corp.’s stock will rise in value. Would he be more likely to buy a put or a call?
- An investment manager has a portfolio that includes a large investment in Ganargua Hydro Corp. While she believes
the company’s prospects are excellent, she is concerned about the risk to the portfolio if something she is not expecting
happens and drives down the stock price. Would she be likely to buy puts or calls on the company’s stock to protect
against this risk? - Lacourtney wants to buy stock in Burali-Forti Corp. but is concerned that the stock market as a whole is at risk of
dropping. The stock now sells for $35 a share, and she would like to be able to have the option of buying the stock for
no more than $40. Would she want to (a) buy calls, (b) sell calls, (c) buy puts, or (d) sell puts?