1. Suppose you buy a put option on a $100,000 worth of euros with an exercise...
1. Suppose you buy a put option on a $100,000 worth of euros with an exercise price of $1.10 per euro for a premium of $1500. If on expiration the spot exchange rate is $1.12 per euro, what is your net profit or loss?
Homework Answers
Put options will be exercised only if price is below strike price of 1.10.
On expiry, price is higher than strike price, so put option will not be exercised.
so payoff = zero (When put is not exercised)
premium paid = 1500
As payoff is zero, the premium paid will be loss.
net profit = payoff - premium paid = 0 -1500 = -1500
Answer : loss of $1500 (Thumbs up please)
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