You purchase a put option on British pounds for $.03 per unit. The exercise pric

Question

You purchase a put option on British pounds for $.03 per unit. The exercise price is $1.36. A pound option represents 31,250 units. At the time of the purchase, the spot rate of the pound is $1.38 and rises to $1.45 by the expiration date. What is the highest net profit possible? You purchase a put option on British pounds for $.03 per unit. The exercise price is $1.36. A pound option represents 31,250 units. At the time of the purchase, the spot rate of the pound is $1.38 and rises to $1.45 by the expiration date. What is the highest net profit possible?

Explanation / Answer

Highest Profit/unit on exercising the put option 1.45-1.36 =0.09 Premium paid per unit =0.03 Net Profit per unit =0.06 Net Profit for one option 31250*0.06 =$1875

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