Question

spot rate now is $1.1201/€, and home currency usd Put on option Euro (€). strike price...

spot rate now is $1.1201/€, and home currency usd

Put on option Euro (€). strike price of $1.0640/€ and a premium of $0.00038/€.

a)find break-even price for the option.

b) any purchaser, when spot rate is $1.1740/€, is the option at-the-money, or in-the-money, or out-of-the-money?

c) find net profit for the option if the spot rate is $1.0000/€.

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Homework Answers

Answer #1
  • a)Break-even price for the put option is where the profit = 0
    • Profit = Strike price - Spot price - premium
    • 0= $1.0640 - Spot price - 0.00038
    • Spot Price = $1.06362/€
  • b) When spot rate is $1.1740/€, it is not profitable to sell the stock. Put option is only in the money when the spot price is lower than the strike price. When the spot is equal to strike, the option is at-the-money, whe the spot price is greater than the strike price then the option is out-of-the-money
  • c) Profit is as follows:
    • Profit = Strike price - Spot price - premium
    • Profit = $1.0640 - 1.0000- 0.00038
    • Profit = $0.06362
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