Question

A call option with a strike price of $1.30/€ and a premium of $0.03/€ is executed...

A call option with a strike price of $1.30/€ and a premium of $0.03/€ is executed as the market price is $1.39/€. The buyer of the option has purchased ten contracts (one contract is for €12,500). The total profit amounts to:

Question options:

€7,500

$7,500

€11,250

$11,250

Question 16 (1 point)

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A trader holds a European put option with a strike price off $1.30/€ and a premium of $0.05/€. At the expiration date the market rate is $1.40/€. What should the trader do?

Question options:

Let the option expire and make a loss equal to the premium of $0.05/€

Exercise and make a profit of $0.05/€

Exercise and make a profit of $0.10/€

Exercise and but face a loss of $0.10/€

Homework Answers

Answer #1

a.

Strike price= 1.3 ; premium=.03 ; Market price= 1.39 ; 1 contract=12500

Profit per contract=Profit through exercising- option price=  (1.39-1.3)*12500 - 12500*.03 = 750$;

Total profit for 10 contracts= 750*10=7500$ ; option B

b.

The best alternative the trader has is let the option expire and make a loss equal to premium of .05$/€ . The trader can never make profit at this position and the minimum loss the trader incurr if he let the option expire.

; Option A

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