Question
In: Finance
Consider the following option contract on the Euro: It is a put option for 125,000 euros,...
Consider the following option contract on the Euro:
It is a put option for 125,000 euros, with settlement prices in terms of US dollars per one euro (i.e., if exercised, euros will be exchanged for the appropriate number of dollars) The strike price is 1.2000 dollars per euro, and the premium is 0.0300 dollars per euro.
- Suppose a trader entered a long position by buying seven of these put option contracts. What would be the trader’s profit or loss if the spot rate upon the option expiration is 1.1950 dollars per euro?
- A different options trader took a short position in this put option (for seven contracts). What would be the trader’s profit or loss if the spot rate upon the option expiration is 1.2050 dollars per euro?
- Another trader writes seven of these put option contracts. What would be this trader’s profit or loss if the spot rate upon the option expiration is 1.1900 dollars per euro?
- Suppose that soon after taking these positions (but before their expiration), the value of the dollar would depreciate substantially, well beyond expectations. Would it benefit the long position in this option or the short position?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
Consider the following option contract on the Euro: It is a put option for 125,000 euros,...
Consider the following option contract on the Euro:
It is a put option for 125,000 euros, with settlement prices in
terms of US dollars per one euro (i.e., if exercised, euros will be
exchanged for the appropriate number of dollars) The strike price
is 1.2000 dollars per euro, and the premium is 0.0300 dollars per
euro.
(a) Suppose a trader entered a long position by buying seven of
these put option contracts. What would be the trader’s profit or
loss...
Consider the following option contract on the Euro: It is a call option for 125,000 euros,...
Consider the following option contract
on the Euro:
It is a
call option for 125,000 euros, but here the
settlement prices are in terms of Swiss franc per one
euro (i.e., if exercised, €125,000 will be delivered in
exchange for the appropriate number of francs) The strike price is
1.07 franc per euro, and the premium is 0.0060 franc per euro.
Suppose a trader writes one of these
call option contracts. What would be the trader’s
profit or loss if...
Consider the following option contract on the Euro: It is a call option for 125,000 euros,...
Consider the following option contract
on the Euro:
It is a
call option for 125,000 euros, with settlement
prices in terms of US dollars per one euro (i.e., if exercised,
€125,000 will be delivered in exchange for the appropriate number
of dollars) The strike price is 1.2000 dollars per euro, and the
premium is 0.0150 dollars per euro.
Suppose a trader writes ten of these
call option contracts. What would be the trader’s
profit or loss if the spot rate...
Show profit (or loss) from buying a put option for a contract size of 62500 euro....
Show profit (or loss) from buying a put option for a contract
size of 62500 euro. Assume exercise price is $1.10 and option
premium is $0.03. Also list cash inflows and outflows at $1.08,
$1.10, $1.12, and at $1.14. What is the break-even price?
Reska, Inc., has constructed a long euro straddle. A call option on euros with an exercise...
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
Reska, Inc., has constructed a long euro straddle. A call option on euros with an exercise...
Reska, Inc., has constructed a long euro straddle. A call option
on euros with an exercise price of $1.10 has a premium of $.02 per
unit. A euro put option has a premium of $.012 per unit. Some
possible euro values at option expiration are shown in the
following table.
Complete the worksheet and determine the net profit per unit to
Reska Inc. for each possible future spot rate.
Value of Euro at Option Expiration
$0.90
$1.05
$1.50
$2.00
Call...
You buy a call option to hedge your position, which is that you owe 125,000 Euro...
You buy a call option to hedge your position, which is that you
owe 125,000 Euro to be paid in 180 days. What is the
worst thing that could happen to you (meaning what
is the worst market movement against you) and, if that should
happen, what is your exposure?
5. You buy a put option on the £ for $.021/£. The option contract size is...
5. You buy a put option on the £ for $.021/£. The option
contract size is £500,000. The exercise price is $1.45/£. When the
option matures, the spot rate is $1.4055/£. What is your overall
profit/loss on the put option?
(3 pts) Consider a June 2020 Put option contract on CC Co. with an exercise price...
(3 pts) Consider a June 2020 Put
option contract on CC Co. with an
exercise price of $40 and a premium of $3.30.
If on the third Friday of June the price of CC is as follows,
fill in the chart below as is relates to the buyer of the
contract.
Price in
June Value
of Option
Contract Profit/Loss
for Buyer
$30 ______________ _______________
$39 ______________ _______________
$48 ______________ _______________
(3 pts) Consider a June 2020 Put
option contract on DD Co. with an
exercise price of $50...
Consider a 1000-strike put option and a forward contract on the S&R index with 6 months...
Consider a 1000-strike put option and a forward contract on
the S&R index with 6 months to expiration. The current index
price is $1000. The put writer receives the premium of $74.20 and
the forward price is $1020. The annual interest rate is 4%.
a. Verify that the S&R index price at which the profit
diagram of the purchased put option intersects the x-axis is
$924.32.
b. At what price of the S&R index the long put option and
the...
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