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Put Options – Journal Questions

Journal Questions

For each of the following scenarios, prepare journal entries, general ledger, trial balance, income statement, and balance sheet.

Long Put, Nonhedging—Functional Currency US$

Cloud Fund had the following trades in Sun in the options market through David Brother brokers. The stock exchange requires that the writer of the options maintain 10 percent of the value of the contract as margin money throughout the life of the contract. On January 1, Cloud Fund introduced $100,000 as capital. We will prepare
Date            Product        StrikePrice         Expiry          Quantity    Rate       B/S         Brokerage
20-Jan-X1      Put               $50             16-Mar-X1      12,000    $5.00        B             $450
24-Feb-X1     Put               $50             16-Mar-X1      14,000    $4.00        B             $600
12-Mar-X1     Put               $50             16-Mar-X1      15,000    $4.00        S             $400

Liquidation Method
  FIFO

Market Rate of Underlying Stock, Sun
  January 31: 48.00
  February 28: 43.00
  March 16: $55

Market Rate of Sun Put Option with Strike Price $50, expiry March 16
  January 31: 2
  February 28: 6.00

Long Put, Nonhedging—Trade Currency SGD

Cerebros Fund had the following trades in ABB in the options market through James Brothers brokers. The stock exchange requires that the writer of the options maintain 10 percent of the value of the contract as margin money throughout the life of the contract. On January 1, Cerebros introduced $125,000 as capital.
Date            Product        StrikePrice        Expiry         Quantity   Rate (SGD)   B/S   Brokerage (SGD)
20-Jan-X1    Put               SGD 50         17-Mar-X1     15,000      9.00            B           600
22-Feb-X1   Put               SGD 50         17-Mar-X1     12,000      5.00            B            520
12-Mar-X1   Put               SGD 50         17-Mar-X1     14,000      6.00            S            700

Liquidation Method
  FIFO

Market Rate of Underlying Stock, ABB
  January 31: 48.00
  February 28: 44.00
  March 16: $55

Market Rate of ABB Put Option with Strike Price $50, Expiry March 17
  January 31: 3
  February 28: 5.00

FX Rate SGD/US$
  January 20: 1.5210
  January 31: 1.532
  February 22: 1.4956
  February 28: 1.500
  March 12: 1.5148
  March 17: 1.5463

Short Put, Nonhedging—Trade Currency INR

ABC Fund had the following trades in Andhra Bank in the options market through Silver Man brokers. The stock exchange requires that the writer of the options maintain 10 percent of the value of the contract as margin money throughout the life of the contract. On January 3, ABC Fund introduced $200,000 as capital and converted $100,000 into INR at 42.5 on the same date.
Date          Product      StrikePrice     Expiry         Quantity      Rate (INR)     B/S     Brokerage (INR)
23-Jan-X1   Put            INR 50      16-Mar-X1      10,000        5.00              S           540
23-Feb-X1  Put            INR 50      16-Mar-X1      16,000        4.00              S           620
10-Mar-X1  Put            INR 50      16-Mar-X1      16,000        3.00             B            320

Liquidation Method
  FIFO

Market Rate of Underlying Stock, Andhra Bank
  January 31: 49.00
  February 28: 44.00
  March 16: $55

Market Rate of Andhra Bank Put Option with Strike Price $50, Expiry March 16
  January 31: 2
  February 28: 6.00

FX Rate INR/US$
  January 23: 42.56
  January 31: 43.56
  February 23: 42.86
  February 28: 44.00
  March 10: 41.56
  March 16:42.00

Short Put, Nonhedging—Trade Currency SGD

Billionaire Fund had the following trades in SingTel shares in the options market through ASC Man brokers. The stock exchange requires that the writer of the options maintain 10 percent of the value of the contract as margin money throughout the life of the contract. On September 23 Billio-naire Fund introduced $200,000 as capital.
Date            Product        StrikePrice          Expiry       Quantity      Rate (SGD)    B/S    Brokerage
23-Sep-X1    Put               SGD 50         16-Nov-X1   10,000          5.00             S         540
23-Oct-X1    Put               SGD 50         16-Nov-X1     8,000          4.00             S         440
10-Nov-X1   Put               SGD 50         16-Nov-X1   12,000           3.00            B          720

Liquidation Method
  FIFO

Market Rate of Underlying SingTel:
  September 30: S$48.00
  October 31: S$43.00
  November 16: S$55

Market Rate of SingTel Put Option with Strike Price S$50, Expiry March 16
  September 30: S$2
  October 31: S$6.00

FX Rate SGD/US$
  September 23: 1.5210
  September 30: 1.532
  October 23: 1.4956
  October 31: 1.500
  November 10: 1.5148
  October 16:1.5463

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