Answer to Question #224987 in Financial Math for Collins

Question

Emmanuella purchased a put option on British pounds for $.06 per unit. The strike price was $1.85, and the spot rate at the time the pound option was exercised was $1.69. Assume there are 31,250 units in a British pound option. What was Emmanuella’s net profit on the option

Answer 1

given,

put = $0.06 per unit

k = $1.85

s= $1.69

units = 31250

$long \space put\space profit= ([max(k−s),0]−put)×units\\=([max(1.85−1.69,0)]−0.06)×31250\\=([max(0.16,0)]−0.06)×31250\\=(0.16−0.06)×31250\\=0.1×31250\\=3125$

answer: $3125