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Bonus Point Lecture 10

Call premium = $0.04; Put premium = $0.03;
Call strike price = $1.56/£, Put strike price = $1.53/£
notional principal = £31250
spot price 1.49

a.
As spot price – strike price < 0 => sell call option
Sell Call Option, get limited profit
Premium paid per unit = $0.04
Net Profit per option = 31,250 units x 0.04 = $1250

Profit ($)
At ($)

Limited Out of the Money ($) In the Money ($)

Profit ($)

Spot rate
Spot Price ($/£)
1.491.561.6 )

Loss ($)

Buy Put Option, get limited profit

Profit per unit on exercising the option = strike price – spot price = $1.53 – 1.49 = $0.04
Premium paid per unit = $0.03
Net profit per unit = $0.01
Net profit per option = 31,250 units × 0.01 = $312.5

As the strike price > spot rate, the speculator should enter into buying the put option to
receive a profit of $312.5 per option.
 Profit ($) At ($)

b. In the Money ($) Out of the Money ($)

Limited
Profit ($)

Spot
Spot Price ($/£)
1.49 1.51.53 )

Loss ($)