Put option exercise profit on a put option before contributions For a strike price of $ 9,500.00 the premium quoted for the put option is 50 (fee), which is (50 x $ 25) or $ 1,250. If interest rates rise as expected, the Eurodollar futures market index will drop below $ 95.00, perhaps as low as $ 94.00. If the market index falls enough, the put option will be exercised because it is now "in the money", since the futures contract mentioned in the put option has fallen in value below its strike price ($ 9,500.00). The bank's asset and liability manager can exercise a put option, receive a short position in the futures market at $ 95.00, and then offset the short position by buying future contracts at the current index of $ 94.00. The gain from exercising the option is $2,500 (100 x 525) per contract. Profit on a Put Option before contributions = [Option strike price- (Future Market price X 100)] X $ 25- Option Premium (Option Premium). [$ 9,500- ($ 94.00 X 100)] X $ 25.00 - $ 1,255 = $ 1,245 per contract | Put option exercise profit on a put option before contributions For a strike price of $ 9,500.00 the premium quoted for the put option is 50 (fee), which is (50 x $ 25) or $ 1,250. If interest rates rise as expected, the Eurodollar futures market index will drop below $ 95.00, perhaps as low as $ 94.00. If the market index falls enough, the put option will be exercised because it is now "in the money", since the futures contract mentioned in the put option has fallen in value below its strike price ($ 9,500.00). The bank's asset and liability manager can exercise a put option, receive a short position in the futures market at $ 95.00, and then offset the short position by buying future contracts at the current index of $ 94.00. The gain from exercising the option is $2,500 (100 x 525) per contract. Profit on a Put Option before contributions = [Option strike price- (Future Market price X 100)] X $ 25- Option Premium (Option Premium). [$ 9,500- ($ 94.00 X 100)] X $ 25.00 - $ 1,255 = $ 1,245 per contract |