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Emma sold a call option on Singapore dollars for A$0
Emma sold a call option on Singapore dollars for A$0.01 per unit. The exercise price was A$0.85, and the spot rate at the maturity was A$0.90. Assume Emma did not obtain Singapore dollars until the option was exercised. Also assume that there are 60,000 units in a Singapore dollar option. What was Emma’s net profit on the call option?
| A. |
A$ -2400 |
|
| B. |
A$ 2400 |
|
| C. |
A$ 3000 |
|
| D. |
A$ -3000 |
|
| E. |
A$ -6000 |
Expert Solution
Solution
Step 1: Calculate the profit per unit on exercising the option as follows:
= Spot - Strike price
= 0.9 - 0.85 = 0.05
Step 2:
Calculate the net profit per unit as follows:
= premium - profit
= 0.01- 0.05 = -0.04
Step 3: Calculate the net profit per option as follows:
= 60000*-0.04 = -2400
OPTION A
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