Short currency straddle Call option premium = $0.05/€, Put option premium = $0.0

Question

Short currency straddle

Call option premium = $0.05/€, Put option premium = $0.05/€

Strike price = $1.10/€, Option contract size = €62,500

Draw graphs of call option, put option, and straddle

Mark BE point and Strike prices

Mark each premium

Spot exchange rate

$1.00/€

$1.05/€

$1.10/€

$1.15/€

$1.20/€

$1.25/€

Sell call option

Holder exercises?

Profit

Sell put option

Holder exercises?

Profit

Net profit

Spot exchange rate

$1.00/€

$1.05/€

$1.10/€

$1.15/€

$1.20/€

$1.25/€

Sell call option

Holder exercises?

Profit

Sell put option

Holder exercises?

Profit

Net profit

Explanation / Answer

Contract Size Euro 62500 Call Option Premium $0.05/Euro Put Option Premium $0.05/Euro Spot Exchange Rate $1/Euro $1.05/Euro $1.1/Euro $1.15/Euro $1.2/Euro $1.25/Euro Strike Price $1.1/Euro $1.1/Euro $1.1/Euro $1.1/Euro $1.1/Euro $1.1/Euro Sell Call Option What will Option writer Get Premium 3125 3125 3125 3125 3125 3125 Payment for selling 68750 68750 68750 68750 68750 68750 Buying cost 62500 65625 68750 71875 75000 78125 Holder Exercise? No No No Maybe Yes Yes Profit 9375 6250 3125 0 -3125 -6250 Sell Put Option What will Option writer Get Premium 3125 3125 3125 3125 3125 3125 Payment for buying 68750 68750 68750 68750 68750 68750 Selling cost 62500 65625 68750 71875 75000 78125 Holder Exercise? Yes Maybe No No No No Profit -3125 0 3125 6250 9375 12500

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.