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Call and put options on the Australian Dollar in Chicago are available with the following specifications:...

Call and put options on the Australian Dollar in Chicago are available with the following specifications: Strike Price : 1.04 Call Premium : 2.15c Put Premium : 2.44c Today's spot price of the Australian Dollar is AUD/USD 1.0474 If the spot price of the Australian Dollar turns out to be AUD/USD 1.08 at expiry what is the percentage return to a speculator from holding only • the Call Option? • the Put Option?

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Answer #1

going long on call option - cost is option premium = 2.15c; at expire the specularor will exercise call option

profit = 1.08-(1.04+.0215)/1.08

Put option will expire

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