Question

4. Suppose you hold a PUT option on Israeli shekels with a strike price of 3.4207s/$. If the spot rate on the final day of the option is 3.4329s/$, how much profit would you make trading $1,000,000? Should you do it?

Answer 1

Answer:

Profit $3,567

I would exercise my option by buying the shares before the expiration .

Explanation:

Calculation of how much profit would you make trading $1,000,000

First step is to multiply the spot rate on the final day by the trading amount

3.4329s*$1,000,000

=$3,432,900

Second step is to divide the spot rate option by the strike price

3,432,900/3.4207

=$1,003,567

Last Step is to find the profit

Profit =$1,003,567-$1,000,000

Profit=$3,567

Therefore the amount of PROFIT you would make trading $1,000,000 will be $3,567

Based on the above calculation I would exercise my option by buying the shares before the expiration .