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/€

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