Question

I have 250,000 euros in my bank account. Currently, 1 euro = $1.10. I want to sell a call option on 250,000 euros (Exercise price=$1.10, premium=$0.02/euro).

a. Draw the profit graphs for both positions separately

b. Why would I sell a call option when I already have the underlying asset (euro) in my bank account?

c. What will be my total profit if the exchange rate at expiration is $1.05/euro?

d. What will be my total profit if the exchange rate at expiration is $1.085/euro?

e. What will be my total profit if the exchange rate at expiration is $1.15/euro?

Answer 1

ANSWER IN THE IMAGE ((YELLOW HIGHLIGHTED). FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE. THUMBS UP PLEASE.

b. Because you belive that $/euro will not spike (rise) significantly, you are bearish to sightly bullish.

A,c,d,e.