NASDAQ Call option for EUR with exercise price of $1.2515/EUR has a premium of 0.07/EUR. If you buy 1 contract and you hold this contract till the expiration date. On that date, the spot price for EUR is $1.1122/EUR, what is your dollar profit/loss including the premium you paid (for the whole contract)?
Computation of Dollar Profit/Loss on Call Option
Call option is an option to buy at a specified price. It is exercised if the spot price is more than the exercise price.
Premium paid for option = $0.07/EUR
Exercise Price = $1.2515/EUR
Spot Price = $1.1122/EUR
Since the Spot Price is less than the Ecercise Price, this option shall not be exercised and the loss shall be limited to the amount paid as premium.
Premium paid = $0.07/EUR
Hence, the dollar loss is $0.07/EUR.
Since the contract size is of 10,000 Euros.
Total loss = 0.07*10,000 = $700
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