Question

Randy Rudecki purchased a call option on British pounds for $.02 per unit. The strike price was $1.45 and the spot rate at the time the option was exercised was $1.46. Assume there are 31,250 units in a British pound option. What was Randy‘s net profit on this option? Show your work.

Answer 1

-$312.50

Step-by-step explanation:

Randy Rudecki made a purchase of a call option for $0.02 per unit

The strike price was $1.45

The spot rate was $1.46

There were 31,250 units in a British pound option

The first step is to calculate the profit per unit that was derived from the call option

= $1.46-$1.45

= 0.01

Net profit per unit= 0.01-0.02

= -0.01

Therefore, the Randy's net profit on this option can be calculated as follows

= 31,250 units × (-0.01)

= -$312.50

Hence Randy's net profit on this option is -$312.50