Question
4. You own one Nov. 20 put options contact on Canadian dollar with K = $0.8050 for which you paid a premium of $0.01/C$. The
4. You own one Nov. 20 put options contact on Canadian dollar with K = $0.8050 for which you paid a premium of $0.01/C$. The spot exchange rate today is $0.7900. (i) How would you classify this option today, in-the-money or out-of-the-money? (ii) What is your profit/loss if you sell this option today if it is trading at a premium of $0.015/C$? Contract size is C$100,000 and the U.S. interest rate is 2%. Assume that you bought this option in Sept 20.
5. (a) What is the payoff profile of a buyer and a writer of an option?
(b) What causes options premium to change over time?
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