AECN 201 Lecture Notes - Lecture 12: Cash Flow, Market Risk, Income Statement
Document Summary
Income: labeling, trade regulations, prices of related goods, chicken, pork, mother"s day, typically spike in cattle prices. Similar volatility to beef: producers can store to some extent. Forward contract: going to sell so much of a product at a specific price. Futures vs forward: entering into forward contract creates personal risk vs market risk. Future contract don"t know who the second party is: both lock in price. Call options: buy call --> right to buy, premium --> price of option. In the money: the option will be exercised, market price above option price. At the money: the option and market price are the same. Out of the money: the option will no be exercised, market price below option price. Put options: buy put --> right to sell, premium --> price of option. Strike --> price of asset that want to purchase. Intrinsic value: time (more time = more risk, volatility (more volatility = more likelihood of execution)
