Question

You have written a put on yen with a strike of ¥115.00/$ at a premium of 0.0080 cents per yen and an expiration of six months from now. The option is for ¥12,500,000. What is the profit or loss if the spot price at maturity is ¥110/$?

$0, option is not exercised.

$1,000, option is not exercised.

$1,000, option is exercised.

-$3528.98, option is exercised.

Answer 1

Profit/loss for Put Holder = Notional Amount / [{Max(Strike Rate - Spot Rate),0} + Premium]

= ¥12,500,000 / [{Max(¥110/$ - ¥115),0) - {1/($0.000080/¥)}]

= ¥12,500,000 / [0 - ¥12500/$]

= ¥12,500,000 / [-¥12500/$]

= -$1,000

Our profit will be $1000 as it is the loss for the put holder.

The option will also be not exercised.

Hence, 2nd option is correct.