Question
Todays spot $/ rate is $1.312419/. You have found the following dollar-denominated options that expire in 1 year. Quotes below are listed on a per-unit()
Todays spot $/ rate is $1.312419/. You have found the following dollar-denominated options that expire in 1 year. Quotes below are listed on a per-unit() basis. Assume that every contract listed in subsequent parts of this question is for 10,000 units (10,000).
Strike | Call Price | Put Price |
$1.20 | $0.1362 | $0.0105 |
$1.25 | $0.0948 | $0.0185 |
$1.30 | $0.0592 | $0.0322 |
$1.35 | $0.0323 | $0.0547 |
$1.40 | $0.0166 | $0.0884 |
a.For each option (that is, for each strike and for both calls and puts), find the price that you would need to pay in pounds () to buy one contract (10,000 options).
b.In one year, the spot rate will take some value. For every possible future spot rate between $1/ and $1.6/ at an increment of .01, calculate the payoff of the long side of each of these option contracts (10,000 options).
c.For each value calculated in part (b), calculate how many pounds you could convert that payoff into.
d.For every value calculated in part (c), find the profit, in pounds (), that that option contract generated for that future spot rate.
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