Ms. Coleman writes today - January 27, 2020, 5 European £ put contracts with the exercise price of CS1.9 = £1.0 and with the expiration date of April 27, 2020. Each £ put size is £31,250. The put premium per £ is CS.02 and the relevant interest rate is 4% per annum
For the following spot exchange rates between CS and £ on April 27, 2020, denoted by ST, calculate profit (loss) of Ms. Coleman of writing or selling 5 £ puts: i ST: CS1.5 per £ ii. Sr: CS 2.1 per £
Also find the break-even ST for Ms. Coleman.
| Writing 5 Pound Puts | ||||||
| Each Pound Put Size | £ 31,250 | |||||
| 5 Put size | £ 156,250 | |||||
| Premium per Pound | 0.02 | CS | ||||
| Total Premium received for writing 5 Pound Puts | 3,125 | (156250*0.02) | ||||
| Strike Exchange Rate for Put=CS 1.9 | ||||||
| Payoff for writing Put: Min.( (ST-1.9),0) CS | ||||||
| ST | A | B=A*156250 | C=B+3125 | |||
| Spot Rate per Pound (in CS) | Payoff per Pound(CS) | Total Payoff for 5 Puts(CS) | Total Profit/(Loss) in CS | |||
| 1.5 | -0.4 | (62,500) | (59,375) | |||
| 2.1 | 0 | 0 | 3,125 | |||
| For ST=1.5, Loss | (59,375) | CS | ||||
| For ST=2.1, Profit | 3,125 | CS | ||||
| BREAKEVEN ST | ||||||
| For Breakeven ST; Payoff per Pound =-0.02 | ||||||
| ST=1.9-0.02= | 1.88 | |||||
| BREAKEVEN ST=CS 1.88 | ||||||
| ST | A | B=A*156250 | C=B+3125 | |||
| Spot Rate per Pound (in CS) | Payoff per Pound(CS) | Total Payoff for 5 Puts(CS) | Total Profit/(Loss) in CS | |||
| 1.88 | -0.02 | (3,125) | 0.00 | CS | ||
Ms. Coleman writes today - January 27, 2020, 5 European £ put contracts with the exercise...