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Future contracts and premiums of call options questions!!?
1) How would a decrease in the price of a given futures contract be expected to affect the premiums of call options on the same futures contract? Briefly explain the rationale behind your answer.
2) how would an unexpected increase in exports of pork to Japan in December be expected to affect the premiums of call options on April hog futures? Briefly explain the rationale behind your answer.
Thank you very much! Hope theres a commodities trader on here!! or someone else with this knowledge! :)
1 Answer
- zman492Lv 73 years agoFavorite Answer
<<<1) How would a decrease in the price of a given futures contract be expected to affect the premiums of call options on the same futures contract? Briefly explain the rationale behind your answer.>>>
The premium of the call would normally be expected to decrease.
Rationale: The delta of a call option is always positive.
<<<2) how would an unexpected increase in exports of pork to Japan in December be expected to affect the premiums of call options on April hog futures? Briefly explain the rationale behind your answer.>>>
The premium of call options would be expected to increase.
Rationale: An increase in exports indicates an increase in demand. Supply cannot increase to meet the increase in demand in four months, so prices would be expected to increase.
Source(s): A good understanding of option pricing., I have never traded commodities but I have traded stock options. Option premiums are calculated the same way regardless of the underlying security.
