Question

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?

Answer 1

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

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