Question

Reska, Inc., has constructed a long euro straddle. A call option on euros with an exercise price of $1.10 has a premium of $.025 per unit. A euro put option has a premium of $.017 per unit. How do you calculate these answers for calls and puts?

Value of Euro at Option Expiration

	$.90	$1.05	$1.50
Call	-$.25	-$.025	+$3.75
Put	+$1.83	+$0.33	-$.017
Net	+$.158	+$0.08	+$.358

Answer 1

THE TABLE GIVEN IS WRONG

Correct solution:

Profit on call
A) when price at expiry is more than strike is equal to=price at expiry-strike-premium

For example when price at expiry is 1.50, profit=1.50-1.10-0.025=0.375

B) when price at expiry is less than strike is equal to=-premium

For example when price at expiry is 0.90, profit=-0.025

Profit on put
A) when price at expiry is less than strike is equal to=strike-price at expiry-premium

For example when price at expiry is 0.90, profit=1.10-0.90-0.017=0.183

B) when price at expiry is more than strike is equal to=-premium

For example when price at expiry is 1.50, profit=-0.017