5. Speculating with currency options (beginner). Referring to problem 3, Prometheus Partners is considering currency options as alternative instruments to speculate on the possible demise of the euro. March 2014 European put and call options are available on the euro at a strike price of $1.3700/€ with respective premiums of 2 and 3 percent.

a. How could a speculative bet be structured around March 2014 option contracts?

b. Explain what cash flows are involved and their timing. Show graphically the payoff profile of the option strategy that you recommend.

c. What are the differences between speculating with futures versus options?