Suppose you buy a call option on a $100,000 worth of euros with an exercise price of $1.10 per euro for a premium of $10...
Suppose you buy a call option on a $100,000 worth of euros with an exercise price of $1.10 per euro for a premium of $1000. If on expiration the spot exchange rate is $1.12 per euro, what is your net profit or loss?
Homework Answers
The number of call option brought = worth of call option /
strike price
= 100,000/1.10
= 90,909.
Profit of call option = (Spot-Strike)*No.of options - Premium paid.
= (1.12-1.10)*90,909-1000
= 1818.18- 1000
= $818.18
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