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Warrior Industries buys a June call option on Euros (contract size is 500,000 euros) on March...

Warrior Industries buys a June call option on Euros (contract size is 500,000 euros) on March 1 that has a strike (exercise) price of $0.58. They pay a premium of $0.05 per euro, and the March 1 spot rate is $0.60.

On the expiration date in June, the spot rate is $0.62. What is Warrior's profit (loss) on the option?

Answer options:

-$15,000
-$5,000
$5,000
$0
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Answer #1

On the expiration date , the spot rate is $0.62. The exercise price is $0.58.

So, the profit per unit on exercising the call option is = ($0.62 - $0.58)

Premium paid is = $0.05

Therefore, the net profit is = ($-0.01)

The number of contracts is (contract size is 500,000 euros),so  net loss on the contract is  = 0.01* 5,00,000 = -$5,000

The correct option is option B .

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