Chapter 01 · Section 1.1
Watchmaker Case Study - Question 2
What our Watchmaker needs is the choice whether or not to use price protection. That means, the Watchmaker needs to buy
a) the right to sell 1,000 ounces of gold at $400/oz in two months.
b) the right to buy 1,000 ounces of gold at $400/oz in two months.
c) the obligation to buy 1,000 ounces of gold at $400/oz in two months.
If the customer signs the contract, our watchmaker will have to purchase around 1,000 ounces of gold. What if, by the time the contract is signed, the gold price is $450 per ounce?