Reference no: EM132382515

1) You purchase a call option on pounds for a premium of $0.03 per unit, with an exercise price of $1.64; the option will not be exercised until the expiration date, if at all. If the spot rate on the expiration date is $1.65, your net profit per unit of pound is:

Net profit per unit = $1.65-$1.64 -$0.03 = -$0.02

2) 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?

Net profit per unit = P+S-X=0.03+0.72-0.75 = $0

3) Carl is an option writer. In anticipation of a depreciation of the British pound from its current level of $1.50 to $1.45, he has written a call option with an exercise price of $1.51 and a premium of $.02. If the spot rate at the option's maturity turns out to be $1.54, what is Carl's profit or loss per unit (assuming the buyer of the option acts rationally)?

$1.51 + $0.02 - $1.54 = -$0.01

4) The existing spot rate of the Canadian dollar is $.82 (1CD=0.82USD). The premium on a Canadian dollar call option is $.04. The exercise price is $.81. The option will be exercised on the expiration date if at all. If the spot rate on the expiration date is $.87, the profit as a percent of the initial investment (the premium paid) is:

The net profit per unit is: ($0.87 - $0.81 - $0.04)/$0.04 = 50%

Can you explain to me why in some of the calculation formula they use different operations?

For the first question, they used Spot - Exercise - Premium but in the second question they used Premium + Spot - Strike