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Suppose that you bought two put options on Swiss franc (CHF) with a strike price of...

Suppose that you bought two put options on Swiss franc (CHF) with a strike price of USD0.9654/CHF. You paid a premium of USD0.0001/CHF to buy the option. One contract size is CHF 125,000. If the option expires when the spot price is USD0.9628/CHF, what is your net profit on this transaction?

USD625

CHF625

USD1237.5

CHF1237.5

None of the above is correct

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Answer #1

ANSWER = USD625

No. of contracts = 2

Size of a contract = CHF 125,000

Total contract size = 2 * CHF 125,000 = CHF 250,000

Strike price = USD 0.9654 / CHF

Spot price = USD 0.9628 / CHF

Premium = USD 00001 / CHF

Net profit = {(Strike price - Spot price) + Premium} * Total contract size

Net profit = {($0.9654/CHF - $0.9628/CHF) + $0.0001/CHF} * CHF 250,000

Net profit = ($0.0026/CHF + $0.0001/CHF) * CHF 250,000

Net profit = $0.0027 /CHF * CHF 250,000

Net profit = $675

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