Question
Long puts. Suppose you are the owner of U.S.-based shoe manufacturing company and just sold specialized sports shoes worth one million Euros () to Dorothy
Long puts. Suppose you are the owner of U.S.-based shoe manufacturing company and just sold specialized sports shoes worth one million Euros () to Dorothy Perkins in Europe. The payment is scheduled in one year. You are concerned that the value of the Euro might fall before next year and reduce your profits. You call your bank and purchase a put option with a strike price of $2/ and a premium of $0.10 /. Assuming the U.S. interest rate is 10%, the total premium cost at year's end would be $0.11/ (i.e., the $0.10/ premium plus a $0.01 per Euro interest cost).
Present the gains or losses for each assumed maturity market (spot) price as given in the first column of the table.
Profit/Loss Profiles for Long Puts
Market (Spot) Price at Maturity | Gains/Losses per Euro |
$1.60/Euro | |
$1.70/Euro | |
$1.80/Euro | |
$1.89/Euro | |
$2.00/Euro | |
$2.20/Euro | |
$2.30/Euro |
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