Option Strike Price Premium
Put (US$/Singapore dollar) 0.6500
0.00003
Call (US$/Singapore dollar) 0.6500
0.00046
Cece Cao in Jakarta. Cece Cao trades currencies for Sumatra Funds in Jakarta. She focuses nearly all of her time and attention on the U.S. dollar/Singapore dollar ($/S$) cross rate. The current spot rate is $0.60000.6000 /S$. After considerable study, she has concluded that the Singapore dollar will appreciate versus the U.S. dollar in the coming 9090 days, probably to about $0.70020.7002 /S$ She has the following options on the Singapore dollar to choose from:.
a. Should Cece buy a put on Singapore dollars or a call on Singapore dollars?
b. What is Cece's breakeven price on the option purchased in part a ?
c. Using your answer from part a ,what is Cece's gross profit and net profit (including premium) if the spot rate at the end of 90 days is indeed $0.70020.7002 /S$?
d. Using your answer from part a , what is Cece's gross profit and net profit (including premium) if the spot rate at the end of 90 days is $0.80040.8004 /S$
Option | Strike Price | Premium |
PUT(US$/ Singapore Dollar) | 0.6500 | .00003 |
CALL(US$/ Singapore Dollar) | 0.6500 | .00046 |
a. She should Buy a Call on Singapore Dollar because she is expecting that Singapore dollar will appreciate against US$ and this call option will give her the right to buy the Singapore dollar in future date at 0.6500 and selling them at 0.70020, making a profit.
b. Breakeven Price = Strike Price + Premium
Breakeven Price = $0.6500 + $0.00046 = $0.65046
c. Spot Price =$0.70020
Gross Profit = Spot Price - Strike Price
Gross Profit = $0.70020 - $0.6500 = $0.05020
Net Profit = Spot Price - Strike Price - Premium
Net Profit = $0.70020-$0.6500-$.00046 = $0.04974
d. Spot Price = $0.80040
Gross Profit = Spot Price - Strike Price
Gross Profit = $0.80040 - $0.6500 = $0.15040
Net Profit = Spot Price - Strike Price - Premium
Net Profit = $0.80040-$0.6500-$.00046 = $0.14994
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