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What is the rational decision to make at expiry

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Reference no: EM133253175

A few weeks ago, you realised that you were exposed to movements in the price of oil. At that time, you hedged this exposure by entering a long call option written on oil.

The call option had a strike price of $90 per barrel. At the time of the option expiry, the spot price of oil is $85 per barrel.

Hedging with options gives you a degree of flexibility. What is the rational decision to make at expiry?

a.Exercise your right to buy oil for $90

b.Let the call option lapse

c.Impossible to say without knowing the option premium paid for the long call

Reference no: EM133253175

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