The Scenarios below demonstrate with the use of call options when the investor believes the foreign currency may appreciate. Please expand on this by expanding on how the investor can use options if he believes the currency may depreciate. What options should the investor buy or sell? What happens if the investor buys this option and the option finishes 1) in the money, and 2) out of the money? What happens if the investor sells this option and the option ends both in the money and out of the money?

Options table
Today's Current Euro price is$1.24/Euro		Calls	Strike	Puts
	April	0.0155	1.25	0.0049
	April	0.0145	1.27	0.0057
	April	0.0135	1.29	0.0073
	April	0.0125	1.31	0.0081
	May	0.0192	1.25	0.0087
	May	0.0163	1.27	0.0095
	May	0.0153	1.29	0.0104
	May	0.0009	1.31	0.0125
	June	0.0229	1.25	0.0123
	June	0.0212	1.27	0.0145
	June	0.0192	1.29	0.0153
	June	0.0183	1.31	0.0159

Scenario 1:

The shoe buyer at macys needs to purchase 1,000,000 Euros worth of Italian shoes to stock the shelves for the summer.

Today the buyer agrees on the purchase of the shoes and delivery will be made 3 months from now in June. The shoes will also be paid for in June.

At the time of payment the buyer must pay in Euros because that was the agreed upon price and currency. Currently the buyer has no Euros but she must have 1,000,000 Euros in June to finalize the payment.

The current price of a Euro is $1.24/Euro but the buyer is afraid that the Euro will get more expensive in the next three months. Thus in order to lock in a price the buyer considers the purchase of CALL options to ascertain the price of Euros today.

Thus the buyer purchase the June CALL contract with a strike price of $1.31/euro and a premium of $.0183.

In June the price of the euro shoots up to $1.35/Euro

Since the buyer owns a call option with a strike price of $1.31/Euro she can now exercise her option at $1.31/Euro

Additionally since the strike price is $1.31/euro and the premium was 0.0183, the break-even cost is $1.3283/euro

The buyers profit is ($1.35-$1.3283) which equals .0217 per contract

Scenario 2:

If instead the price of the Euro drops to $1.25/Euro then the option becomes worthless as there is no value in purchasing the contract at the strike price of $1.31/Euro

The buyer loses just the premium and she can now buy the Euro at the current price of $1.25/Euro

Scenario 3:

Can the buyer make any money with the SALE of a call (instead of a purchase)?

If the buyer believes that the price of the euro will not change much over the next there months, the buyer can make money buy selling the call option and just collecting the premium

Thus if she believes that the Euro will not change much from its current price of $1.24/Euro over the next three months she will sell the Juen Call contract with a strike price of $1.28/Euro and she will collect the premium of $0.183

Come June if the price has only moved to $1.25/Euros the owner of the option with the $1.28 strike price will not exercise the option because the currency can instead be bought at the lower price of $1.25/Euro

The buyer get to keep the premium of $0.0183 per contract

Because of a lack of volatility the buyer made money by selling the CALL option

Scenario 4:

Come June if the price of the Euro goes up to $1.40/Euro the owner of the option will exercise the call to purchase the currency at $1.28 Euro

However since the buyer sold the call she must deliver currency to satisfy the call

If she already own Euros she will need to deliver what she has however if she doesnt own any Euros she will need to buy them in the open market at $1.40/Euro and deliver them at a price of $1.28/Euro. Here the lost is ($1.40-$1.28)=$.12 a contract

If call options are sold naked the loss could be unlimited if the price makes a large upward direction