Assume that the exercise (strike) price for call option is 700 and cumulative HDD is 1050.  The dollar multiplier per degree day is $10,000. What will be cash payoffs to call option buyer in this situation?

Finance Basics

Assume that the exercise (strike) price for call option is 700 and cumulative HDD is 1050.  The dollar multiplier per degree day is $10,000. What will be cash payoffs to call option buyer in this situation?

Since electricity cannot be stored, its price has been subject to 100%-200% volatility per annum. The CME Group trades electricity futures and there are also over-the-counter electricity options and forwards. (a) Please list the likely major users of electricity futures, forwards, and options. (b) How might Southern California Edison use electricity futures or options to protect or improve its financial performance? Explain. Limit your answer to ten sentences.

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