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The put premium per British pound on March 1 is $0.04, the settlement date is September 19, and the strike price is $1.40. A speculator
The put premium per British pound on March 1 is $0.04, the settlement date is September 19, and the strike price is $1.40. A speculator anticipates that the spot rate for the pound will fall to $1.32/ by September 19.
a) Given his expectations, should the speculator purchase a put option or a call option?
b) If the speculators expectations are correct (the spot rate at the option maturity is 1.32), what would be his dollar net profit or loss from buying two put options of size 31,250 each?
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