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adoni [48]
3 years ago
7

The break-even point for a put option buyer occurs when the revenue from selling the currency in the spot market is equal to the

exercise price and the premium paid. True or false?
Business
1 answer:
Alenkasestr [34]3 years ago
5 0

Answer:

False

Explanation:

A put option buyer purchases a right to sell a currency on expiry date at a pre determined exercise price or strike price. Put buyer is not under any obligation to sell the option. He will only exercise the right when it is beneficial for him.

3 terms are relevant here,

OP= Option premium paid

CMP= Current Market Price

EP= Exercise or strike price

A put buyer gains when his exercise price is more than the CMP on the expiry date.

His gain is =  EP - CMP - OP

So, when exercise price as reduced by option premium paid is equal to current market price, break even point for a put buyer is reached.

Hence the given statement is false.

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