Tutorial Futures and Option - Answer

1. As an option writer, what is the best option to take when you forecast the market to be bullish? Sketch the profit/loss diagram and determine the in the money, out of the money and at the money. 2. The call option of Diamond Bhd stock has a striking price of RM30 and a cost of option RM2 per share with one month expiration date. The current market price of share is RM26. If you buy 3 lots (1 lots = 100 shares) of shares, calculate the profits or losses at the expiration date for each of the following prices: I. RM30 II. RM40 III. RM25
At RM30, SP = EP, ATM , do not to exercise –pay only premium SP | 30 x 300 = RM9,000 | EP | 30 x 300 = RM9,000 | Gross profit | 0 (ATM) | Premium | (2x300) = (RM6,00) | Loss | = (RM600) | At RM 40, SP >EP , ITM, exercise the option SP | 40 x 300 = RM12,000 | EP | 30 x 300 = RM 9,000 | Gross profit | RM 3,000 (ITM) | Premium | (2x300) = (RM 600) | Profit | = RM2,400 |
At RM 25, SP <EP , OTM, do not exercise SP | 25 x 300 = RM7,500 | EP | 30 x 300 = RM 9,000 | Gross profit | RM1,500(ITM) | Premium | (2x300) = (RM 600) | loss | = RM 600 only pay the maximum loss (premium) | 3. The cost of put option for Syarikat Gemerlapan is RM150 per lot. You wish to buy 3 lots. The market price of the share is RM7. Determine your profit or loss if you exercise the option at 1 lot for RM7.00 per share and 2 lots for RM8.00 per share.
EP >Sp = ITM
Exercise price = RM7 x 100 = RM700
Exercise price = RM8 x200 = RM1600
SP = RM 7 x300 = RM2100
Gross profit = RM200
Premium 150 x 3 = RM450
Loss = (RM250)

4. As a speculative trader you are interested in the performance of the KLCI. The last few months you observed the market had a bullish pattern. However, today you believe