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In: Finance

You trade in two types of options.  First, you purchase 7 call option contracts on the Euro...

You trade in two types of options.  First, you purchase 7 call option contracts on the Euro with an exercise price of 1.25. Second, you sell 8 put option contracts on the Euro with an exercise price of 1.22.  The fees/prices on the contracts are $.04 (calls) and $.03 (puts).  Forward Rates for the Euro are 1.210-11 $/E.  If contract sizes for Euros are 125,000 options per contract and the final price of Euros is 1.40. $/E, how much profit/loss have you made from participation in options?

Solutions

Expert Solution

Particulars Call Put Total
Strike price               1.250             1.220
Expiration price               1.400             1.400
Option status Exercise Lapse
Profit per Euro               0.150
× Number of options per contract           125,000        125,000
× total contracts               7.000             8.000
Total payoff           131,250 131,250
Option premium flow           (35,000)           30,000      (5,000)
Net profit 126,250

Net profit is 126,250

please rate.


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