Question

3. You have $12,500 that you want to use to speculate in yen options. The spot rate is ¥108.84/$. You think that, at this rate, the yen is underpriced and, therefore, you expect it to substantially appreciate against the dollar in the coming few weeks. You decide to use your $12,500 to act on your expectations. The yen three-week calls and puts with an exercise price of $0.009000/\ are selling for (i.e. premiums are) $0.000200/¥ and $0.000400/yen respectively. (Each yen contract calls for the exchange of 6.25 million yen) a. Would you buy call or put contracts? Explain your answer in your own words. b. How many contracts can you buy with the money you have? c. Assume that you buy 20 put contracts. If at the end of three weeks the spot rate is ¥119.20/$, calculate your total payoffs and profit/loss from your investment.

Answer 1

I will take (buy) coul option because I am thinking that it is under priced & price is going to rise in future So you are Loking cestain price now. hince we will take call optim. 162 with 12,500 we can buy 12,500 = 62,500,000 Yen 0.0002 mo contract size is 6.25 million so we can buy to como sacts. 11

Page Date C. / 20x6. 25 'Millime 125 million yen. as we entered in put optimi Soy we can sellat 0.00900051 yea. current parce : 1 . to 114.20 A loi 008389. $ Yen so we will Excercise the optim & our quin will be cance to I (0.00000-0-008389)x125 76,3750 Dag

I hope my efforts will be fruitful to you ......?