1. Suppose that a March call option with a strike price of $50 costs $2.
50 and is held until
March. Under what circumstances will the holder of the option make a gain? Under what
circumstances will the option be exercised? [a) If the spot price exceeds $52.5 b) If the
spot price is greater than strike price]
2. Suppose that a June put option with a strike price of $60 costs $4 and is held until June.
Under what circumstances will the holder of the option make a gain? Under what
circumstances will the option be exercised? [a) If the spot price is less than $56 b) If
the spot price is less than the strike price]
3. Assume you have a call option on a stock with a strike price of 150. The option price is
12. Identify the profit / loss in the following cases:
a. If the market price at maturity is 170 [Exercise, +8]
b. If the market price at maturity is 162 [Exercise, Break-even]
c. If the market price at maturity is 138 [Not Exercise, -12]
d. If the market price at maturity is 120 [Not Exercise, -12]
e. If the market price at maturity is 185 [Exercise, +23]
For Seller of the option:
[-8]
[+12]
[+12]
[+12]
[-23]
4. Assume an investor buys a put option at a price of $4 on one unit of Asset X with one month to
maturity and an exercise price of $400. Identify the profit and loss in each of the following
scenarios. Write down the amount of profit/loss for each of the following. Also make a graph of
it.
a. If the asset’s price at the end of maturity is greater than $400 [Not Exercise]
b. If the asset’s price at the end of maturity is equal to $404 [Not Exercise, Break-
even]
c. If the asset’s price at the end of maturity is less than $400 [Indifferent, -4]
a. If the asset’s price at the end of maturity is greater than $400 but less than 402 [Not
Exercise]
5. Alice Duever purchased a put option on British pounds for $.04 per unit. The strike price was
$1.80, and the spot rate at the time the pound option was exercised was $1.59. Assume there
are 31,250 units in a British pound option. What was Alice’s net profit on the option?
[(1.8 – 1.59) – 0.04] x 31250
6. Mike Suerth sold a call option on Canadian dollars for $.01 per unit. The strike price was $.76,
and the spot rate at the time the option was exercised was $.82. Assume Mike did not obtain
Canadian dollars until the option was exercised. Also assume that there are 50,000 units in a
Canadian dollar option. What was Mike’s net profit on the call option?
[(0.76 – 0.82) + 0.01] x 50000
7. Brian Tull sold a put option on Canadian dollars for $.03 per unit. The strike price was $.75, and
the spot rate at the time the option was exercised was $.72. Assume Brian immediately sold off
the Canadian dollars received when the option was exercised. Also assume that there are 50,000
units in a Canadian dollar option. What was Brian’s net profit on the put option?
[(0.72 – 0.75) + 0.03] x 50000