Question

Suppose that you are a speculator that anticipates an appreciation of the Singapore dollar (S$). You purchase a call option contract on Singapore dollars. Each contract represents S$40,000, with a strike price of $0.69 and call option premium of $0.03 per unit. Suppose that the spot price of the Singapore dollar is $0.70 just before the expiration of the call option contract. At this time, you call the contract and immediately sell the Singapore dollars to a bank at the current spot price.

Fill in the following table from your (the buyer's) perspective.

Transaction Per Unit Per Contract
Selling price of $0.92 _________
- Purchase Price of 5$ -$0.86 _________
- Premium Paid for Option -$0.02 _________
Net profit _________ _________

Answer 1

Answer: $1600

Step-by-step explanation:

Selling price:

Per unit = $0.92

Per contract = $0.92 × 40000 = $36800

Purchase price of $5:

Per unit = -$0.86

Per contract = -$0.86 × 40000 = -$34400

Premium Paid for Option:

Per unit: -$0.02

Per contract = -$0.02 × 40000 = -800

Net profit = $36800 + (-$34400) + (-800)

= $36800 - $34400 - $800

= $1600

The net profit is $1600