Question

Jason purchased a call option on Swiss Franc for $0.69 per unit. The strike price was $1.28 and the spot rate at the time the option expired was $1.76. Each SF option contract has 20,000 units. Would Jason exercise this option or not? What was Jason’s net profit on this call option?

a. -$4,200

b. $4,200

c. –$5,600

d. $5,600

Answer 1

Jason purchased a call option on Swiss Franc for $0.69 per unit. The strike price was $1.28 and the spot rate at the time the option expired was $1.76. Each SF option contract has 20,000 units.

Would Jason exercise this option or not?

Answer: Jason will exercise this option, because sport rate at the time the option expired is more than the strike price.

What was Jason’s net profit on this call option?

Answer: a. -$4,200

Working

Formula for calculating net profit on this call option is as follows

Net profit call option = (spot rate on option expiration – strike price – Call option price)* Contract units

                                    = ($1.76 – $1.28 – $0.69)*20,000

                                    = – $4,200

Where,

Spot rate on option expiration = $1.76 (provided in the question)
Strike price = $1.28 (provided in the question)

Call option price = $0.69 (provided in the question)
Contract units = 20,000 (provided in the question)