Question

Suppose you buy a put option contract on October gold futures with a strike price of $1200 per ounce. Each contract is for the delivery of 100 ounces. What happens if you exercise when the October futures price is $1,180?

Answer 1

Answer:

Strike price of October gold future = $1,200 per ounce

The exercise price = $1,180

To calculate the amount that will help the investor to decide about the position

Amount added to margin = (Strike price - Future price) * Delivery if each contract

Amount added to margin = ($1,200 - $1,180) * 100

Amount added to margin = $20 * 100

Amount added to margin = $2,000

Therefore, the amount of $2,000 is received. The investor has short position on future contracts to sell 100 ounces of gold in October.