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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.

  1. Suppose a trader writes ten of these call option contracts. What would be the trader’s profit or loss if the spot rate upon the option expiration is 1.1750 dollars per euro?
  2. A different options trader purchased one of these call option contracts. What would be the trader’s profit or loss if the spot rate upon the option expiration is 1.850 dollars per euro?
  3. Another trader purchased two of these call option contracts. What would be this trader’s profit or loss if the spot rate upon the option expiration is 1.225 dollars per euro?
  4. 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?

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jeff jeffy answered 2 years ago
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