Question

​Henrik's Options. Assume Henrik writes a call option on euros with a strike price of ​$1.2500​/euro at a premium of 3.80cents per euro ​($0.0380​/euro​) and with an expiration date three months from now. The option is for euro100 comma 000. Calculate​ Henrik's profit or loss should he exercise before maturity at a time when the euro is traded spot at strike prices beginning at ​$1.10​/euro​, rising to ​$1.34​/euro in increments of ​$0.04. The profit or loss should Henrik exercise before maturity at a time when the euro is traded spot at ​$1.10​/euro is ​$ nothing. ​(Round to the nearest cent and indicate a loss by using a negative​ sign.)

Answer 1

I ) In the Ist case since Henrik is opting call write so when the price in market is higher as compare with strike price then call buyer will exercise the call option. So henrik is bound to sell at that price.

So Henrik's Profit/Loss= ($1.34 - $1.25 - $0.038) *100000 = Loss of ($ 5,200/-)

II) In the IInd case since Henrik is opting call write so when the price in market is lesser as compare with strike price then call buyer will not exercise the call option. Since henrik has sale his right of whether sell of share or not will only decide by call buyer. In the IInd case since market price is less then excercise price so call buyer will not exercise this option.