Analyze the impact of peter decision

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Question - Due to the current Covid-19 pandemic, Mr. Peter predicts that the market is about to undergo a downturn and he decided to buy put options on the KLCI index. The put options carry a strike price of 1750 points and is quoted at 15 points. Although the FBMKLCI is currently at 1745 points, Peter thinks that it will drop to 1720 points on the expiry date of the options. However, Peter exercises his rights when the index falls to 1730 points instead of 1720 points.

Required - Analyze the impact of Peter's decision as mentioned in the above case. Show the relevant calculations?

Reference no: EM133105013

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