Question

1. Using the quotations in the following table, calculate the US dollar value of the open interest in the June and September Swiss franc futures contracts.

Please show your work.

	Open	High	Low	Settle	Change	Open interest
Canadian Dollar (CME)-CAD 100,000; $ per CAD
June	.7724	.7768	.7714	.7753	.0023	118,862
Sept	.7719	.7766	.7715	.7753	.0023	2,744
British Pound (CME)-£62,500; $ per £
June	1.4353	1.4416	1.4333	1.4391	.0023	238,280
Sept	1.4356	1.4421	1.4342	1.4398	.0023	1,796
Swiss Franc (CME)-CHF 125,000; $ per CHF
June	1.0258	1.0271	1.0231	1.0235	−.0032	43,970
Sept	1.0300	1.0300	1.0276	1.0282	−.0032	178

2. You write a put option on JPY with a strike price of USD0.008/JPY (JPY125.00/USD) at a premium of USD0.008 per JPY and with an expiration date six months from now. The option is for JPY12,500,000.

What is your profit or loss at maturity if the ending spot rates are:

JPY110.00/USD

JPY122.00/USD

JPY135.00/USD

JPY140.00/USD

Answer 1

(1) The US Dollar value of the CHF futures contract for July and September should be calculated using the settle (settlement or closing) price for each month. Further, each futures contract has a size of 125000 CHF and the open interest of each month provides the number of outstanding (unsettled) futures contract at that point in time.

July $/CHF Exchange Rate = $ 1.0235 / CHF

$ Value of one Swiss Franc futures contract = 125000 x 1.0235 = $ 127937.5

Number of outstanding futures contract = Open Interest = 43970

$ Value of Swiss Franc futures contract open interest (July) = 43970 x 127937.5 = $ 5625411875 ~ $ 5.625 billion approximately.

September $ / CHF Exchange Rate = $ 1.0282 / CHF

$ Value of one Swiss Franc futures contract = 125000 x 1.0282 = $ 128525

Number of Swiss Franc futures outstanding = Open Interest = 178

$ Value of Swiss Franc futures open interest (September) = 178 x 128525 = $ 22877450 ~ $ 22.87 million approximately.

(2) Before beginning with the solution to this problem it has to be clearly understood that the underlying asset in this context is the JPY (and not the USD). Hence, the put option is on the JPY and prices should quoted at the number of $ required against 1 JPY.

Strike Price = 0.008 $ / JPY and Premium paid $ 0.008 / JPY

Further. the put option is in the money when the strike price is above the spot price at the time of the put option's expiry

(a) Spot Price = 110 JPY / $ or 0.0091 $ per JPY

As Spot Price (0.0091) > Strike Price (0.008) the option is out-of-money. Hence, the loss is limited to the option premium paid = 0.008 $ / JPY

(b) Spot Price = 122 JPY / $ or $ 0.0082 per JPY.

As Spot Price (0.0082) > Strike Price (0.008) the option is again out-of-money. Hence, the loss is limited to the option premium paid.

Loss = Option premium paid = $ 0.008

(c) 135 JPY / $ or $ 0.00741 $ per JPY

As Spot Price (0.00741) < Strike Price (0.008) the option is in-the-money.Hence, profit is equal to the difference between the higher strike price and the lower spot price. This profit needs to be netted against the initial option premium paid to arrive at the net gain/loss.

Net Gain = (0.008 - 0.00741) - 0.008 = - $ 0.00741 (a negative value implies a net loss)

(d) Spot Price = 140 JPY / $ or $ 0.007143 per JPY

As Spot Price (0.007143) < Strike Price (0.008) the option is in-the-money. Hence, the profit is the difference between the higher strike price and the lower spot price netted against the initial option premium paid.

Net Gain = (Strike Price - Spot Price) - Initial Option premium = 0.008 - 0.007143 - 0.008 = - $ 0.007143 ( a negative value indicates a loss)