5. You buy a put option on Swiss Francs (SFr) for a premium of $0.01 per...

5. You buy a put option on Swiss Francs (SFr) for a premium of $0.01 per SFr, with an exercise price of $0.95. If at the maturity date, the spot rate is $0.91, (a) What is your net profit (or loss) per unit of SFr at the maturity date? (b). Draw a net profit graph for buying this put option. (c). Draw a net profit graph for selling this put option.

Expert Solution

a) Net Profit of buying a put option = max(X - St, 0) - premium paid

Net Profit = max(0.95 - 0.91, 0) - 0.01

Net Profit = max(0.04, 0) - 0.01

Net Profit = 0.04 - 0.01

Net Profit = $0.03 per unit of SFr

b) Net Profit of buying a put option = max(X - St, 0) - premium paid

Screenshot with formulas

c) Net Profit of selling a put option = -max(X - St, 0) + premium paid

Screenshot with formulas

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jeff jeffy answered 1 year ago

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