XYZ has sold British pound call options for speculative purposes. The option pre
ID: 2613200 • Letter: X
Question
XYZ has sold British pound call options for speculative purposes. The option premium was $.06 per unit, and the exercise price was $1.58. XYZ will purchase the pounds on the day the options are exercised (if the options are exercised) in order to fulfill its obligation. In the following table, fill in the net profit (or loss) to XYZ if the listed spot rate exists at the time the purchaser of the call options considers exercising them.
Possible spot rate at the time
purchaser of Call Option
considers exercising them
$1.53
$1.55
$1.57
$1.60
$1.62
$1.64
$1.68
Explanation / Answer
XYZ Limited sold the call option that means right to buy for holder of the option Option Premium $ 0.06 Exercise Price $ 1.58 If he exercise the option total consideration received $ 1.64 Spot price at the time of exercising them Spot Price Option Option Premium Profit/(Loss) $ 1.53 Reject the Option $ 0.60 $ 0.06 $ 1.55 Reject the Option $ 0.60 $ 0.06 $ 1.57 Reject the Option $ 0.60 $ 0.06 $ 1.60 Exercise the Option $ 0.60 $ 0.04 Exercise Price+Option Premium-Sopt Market Price 1.64-1.60 $ 1.62 Exercise the Option $ 0.60 $ 0.02 $ 1.64 Exercise the Option $ 0.60 $ - $ 1.68 Exercise the Option $ 0.60 $ (0.04)
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