29 Currency strangles. (See Appendix 5B in this chapter.) Assume the following options are currently available for
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29 Currency strangles. (See Appendix 5B in this chapter.) Assume the following options are currently available for dollars:
l Call option premium on dollars ¼ £0.04 per unit.
l Put option premium on dollars ¼ £0.03 per unit.
l Call option strike price ¼ £0.64.
l Put option strike price ¼ £0.62.
l One option contract represents $50 000 a Construct a diagram for a long strangle using these options.
b Determine the breakeven point(s) for a strangle.
c If the spot price of the dollar at option expiration is £0.63, what is the total profit or loss to the strangle buyer?
d If the spot price of the dollar at option expiration is £0.51, what is the total profit or loss to the strangle writer?
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