Question

​You are a speculator who sells a put option on Canadian dollars for a premium of $.03 per unit, with an exercise price of $.86. The option will not be exercised until the expiration date, if at all. If the spot rate of the Canadian dollar is $.78 on the expiration date, your net profit per unit is:

Answer 1

Answer: There will be a loss of $0.05 per unit

Explanation:

The value of an option is simply the addition of its time value and also the intrinsic value. In this question, the following details has been given:

Exercise price = $0.86

Premium for option = $0.03

Spot Rate = $0.78

Here, there will be a loss which will be calculated by subtracting the spot price ane the premium option from the exercise price. This will be:

= $0.86 - $0.78 - $0.03

= $0.05

There will be a loss of $0.05 per unit.