Question

Kiko Peleh's Puts. Kiko Peleh writes a put option on Japanese yen with a strike price of $0.008000/(125.0075) at a premium of 0 00804 per yen and with an expiration date six month from now. The option is for 12,500,000. What is Kiko's profit or loss at maturity if the ending spot rates are V111/5, V11475, V12075, V126/5, V131/6, V135/S, and W14075 Kiko's profit or loss at maturity if the ending spot rate is 111/5 is (Round to the nearest cent and indicate a loss by using a negative sign) Kiko's profit or loss at maturity if the ending spot rate is 114/$is (Round to the nearest cent and indicate a loss by using a negative sign.) Kiko's profit or loss at maturity if the ending spot rate is 120/5 is $ (Round to the nearest cent and indicate a loss by using a negative sign.) Kiko's profit or loss at maturity if the ending spot rate is 126/5 is $ (Round to the nearest cent and indicate a loss by using a negative sign.) Kiko's profit or loss at maturity if the ending spot rate is 131/5 is $ (Round to the nearest cent and indicate a loss by using a negative sign.) Kiko's profit or loss at maturity if the ending spot rate is 135/5 is S (Round to the nearest cent and indicate a loss by using a negative sign.) Kiko's profit or loss at maturity if the ending spot rate is 140/5 is S (Round to the nearest cent and indicate a loss by using a negative sign.)

Answer 1

Kiko would benefit if the spot price increases beyond 0.008 $/Yen (125 yen/$) say 0.009 $/Yen ie, the ending spot price is Less than 125 Yen/$ (say 120 Yen/$). In such cases, the option will not be exercised and Kiko would get the entire premium. The put option is exercised if  the ending spot rate is more than 125Yen /$., say 130 Yen/Dollar

The contract size is 12,500,000 Yen or 12,500,000/125 = $100,000

The premium taken by Kiko is 0.008 cents per Yen

So, for 12,500,000 Yen , premium = 0.008 * 12,500,000 cents = 100,000 cents = $1000

If the ending spot rate is 111Yen/$, the option is not exercised and the profit to Kiko = premium = $1000  

Similarly, If the ending spot rate is 114Yen/$, the option is not exercised and the profit to Kiko

=premium =$1000

Similarly, If the ending spot rate is 120Yen/$, the option is not exercised and the profit to Kiko

=premium =$1000

If the ending spot rate is 126Yen/$, the option is exercised and the profit to Kiko

=premium in dollars - (ending spot price in yen/$ - strike price in Yen/$)* Contract size in Dollars / Ending spot price in Yen/$

=$1000- (126-125)*100,000/126

= $1000 -793.65

=$206.35

Similarly,If the ending spot rate is 131Yen/$, the option is exercised and the profit to Kiko

=$1000- (131-125)*100,000/131

= $1000 -4580.15

= - $3580.15

If the ending spot rate is 135Yen/$, the option is exercised and the profit to Kiko

=$1000- (135-125)*100,000/135

= $1000 -7407.41

= - $6407.41

If the ending spot rate is 140Yen/$, the option is exercised and the profit to Kiko

=$1000- (140-125)*100,000/140

= $1000 -10714.29

= - $9714.29