Answered step by step
Verified Expert Solution
Question
1 Approved Answer
4a. Assume that you had speculated the day of DC1 by purchasing put options that specify 1 million units of the foreign currency. You
4a. Assume that you had speculated the day of DC1 by purchasing put options that specify 1 million units of the foreign currency. You then disposed of your contracts the day of DC2 or exercised them if it was reasonable to do so. What would be your profit or loss after considering the premium you paid for the put options? Calculate your results for the OTM, ATM and ITM options. Please report the profit/loss before and after commissions. ITM ATM OTM Option price (beg) Option price (end) P/L per unit Option price (beg) Option price (end) P/L per unit Option price (beg) Option price (end) P/L per unit Gross Profit/loss Commission paid Net profit/loss Gross Profit/loss Commission paid Net profit/loss Gross Profit/loss Commission paid Net profit/loss 4b. Assume that you had speculated the day of DC1 by selling put options that specify 1 million units of the foreign currency. If puts are expiring, the counter-party on your contract exercised the contract at the day of DC2 if it was feasible to do so. If puts have time value you would have to cancel them at market prices. What would be your profit or loss after considering the premium you received from selling the put option? Calculate your results for the OTM, ATM and ITM options. Please report the profit/loss before and after commissions. ITM ATM OTM Option price (beg) Option price (end) P/L per unit Option price (beg) Option price (end) P/L per unit Option price (beg) Option price (end) P/L per unit Gross Profit/loss Commission paid Net profit/loss Gross Profit/loss Commission paid Net profit/loss Gross Profit/loss Commission paid Net profit/loss
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started