Question

Randy purchased a call option on British pounds for $.02 per unit. The strike price was $1.45 and the spot rate at the time the option was exercised was $1.46. Assume there are 31,250 units in a British pound option. What was Randy’s net profit on this option? What is the net profit per unit to the seller of this option?                                

Answer 1

Answer : Calculation of Randy's Net Profit / Loss :

Since the spot(market) price of the call option is more than the strike price therefore call option will be excersied.

Net Profit on excersing the option = 1.46 - 1.45 = $0.01

Premium paid on Call option = (-0.02)

Net Profit on this option per unit = 0.01 - 0.02 = (-0.01)

Total Net Profit per option = (-0.01) * 31250

   = (-312.50)

Net Profit per unit of seller = 0.01 [0.02 (Premium received) - 0.01 (Settlement loss)]

Net Profit per option = 0.01 * 31250

= 312.50