3. Ahmet is a currency option speculator. He wants to speculate on 1,000,000 using...
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3. Ahmet is a currency option speculator. He wants to speculate on 1,000,000 using currency option on . The current spot rate on $/ is $1.28 / . Ahmet wants to buy an option on . Since he expects that will depreciate against $ in 3-months. The strike (exercise) price and option premium for each option alternative is given in the table below as follows:
| Option | Strike Price | Option premium |
| Call option on
Put option on | 0.7692 / $
0.7692 / $ | $ 0.02 /
$ 0.015 / |
|
|
|
|
Based on the information given above, answer the following questions:
Which option (call or put) would Ahmet buy based on his expectations?
Based on your answer in part (a), what is the break-even price?
Based on your answer in part (a), calculate the total gross profit and net profit in $ for each speculator if the actual spot rate at maturity of the option becomes $1.31 / .
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