Question
Linda tries to take advantage of using option market on the exchange rate to make some profit. Here is the information she currently sees in
Linda tries to take advantage of using option market on the exchange rate to make some profit. Here is the information she currently sees in the market. The current exchange rate today: $1.33/euro European Call option expires in 55 days, Strike price: $1.28/euro Option Premium: $0.09/euro European Put option expires in 55 days, Strike price: $1.26/euro Option Premium: $0.03/euro Linda's prediction on the exchange rate in 55 days: $1.19/euro Linda wants to make profit from speculating the exchange rate movement in the option market. Show the best strategy that Linda should take using these available options that would give her the Highest payoff if she truly believes that her prediction on exchange rate will prove to be correct? (Show calculations to support your answer).
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