Question

Peleh buys a call option on Swiss franc with a strike price of $0.5820/SF at a premium of 0.0008 $ per Swiss franc and with an expiration date three months from now. The option is for SF1,500,000. What is Peleh's profit or loss at maturity if the ending spot rates are $0.5640/SF, $0.5760/SF, $0.5930/SF, $0.60/SF.

Answer 1

1	Peleh buys a call option that means he has a right to buy
	@ $0.5820/SF (Strike Price) after 3 months.
2	Also he has to pay option premium of $0.0008/SF
3	Option exercises if ending spot rate is more than that of strike price,
	then Profit/Loss is (Ending Spot Rate - Strike Price - Option Premium)
4	If Option not exercises, means ending spot rate is less than that of strike price,
	then there will be loss of option premium paid.
	So,
a)	If Ending Spot Rate is $0.5640/SF then Option will not exercise as
	Strike price is more than that of ending spot rate.
	So, Loss per Swiss Frank = Option Premium = $0.0008
	Total Loss = Loss*Total Option
		=$0.0008 * SF1500000
		=$1200
b)	If Ending Spot Rate is $0.5760/SF then Option will not exercise as
	Strike price is more than that of ending spot rate.
	So, Loss per Swiss Frank = Option Premium = $0.0008
	Total Loss = Loss*Total Option
		=$0.0008 * SF1500000
		=$1200
c)	If Ending Spot Rate is $0.5930/SF then Option will exercise as
	Strike price is less than that of ending spot rate.
	So, Profit per Swiss Frank = Ending Spot Rate - Strike Price - Option Premium
			= $0.5930 - $0.5820 - $0.0008
			= $0.0102
	Total Profit = Profit*Total Option
		=$0.0102 * SF1500000
		=$15300
d)	If Ending Spot Rate is $0.60/SF then Option will exercise as
	Strike price is less than that of ending spot rate.
	So, Profit per Swiss Frank = Ending Spot Rate - Strike Price - Option Premium
			= $0.60 - $0.5820 - $0.0008
			= $0.0172
	Total Profit = Profit*Total Option
		=$0.0172 * SF1500000
		=$25800