On July 1 of this year you feel that oil will be going up in price. If the highe

Question

On July 1 of this year you feel that oil will be going up in price. If the highest price during June is exceeded you will buy 1 contract. You have decided to risk 1.00 a barrel. You will take profits if oil goes up by 3.50 after you buy.

1) What order do you create to buy 1 contract if oil reaches $98.50 per barrel? (exceeding the June high)

2) What order do you create to limit your risk, and when do you enter this order?

3) What order do you create to sell if your profit objective is reached?

4) What is your profit or loss in total dollars?

5) Approximately how long did you own your contract?

Explanation / Answer

1.we would create call option order.

2.To limit the risk we would create call option order.In june we will enter this order.

3. Put option order we will create to sell if our profit objective is reached.

4. loss=100-98.5=1.5

5. contract is owned for 1 month.

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