Currency strangles see appendix 5b in this chapter assume, Ask an Expert

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Currency strangles. (See Appendix 5B in this chapter.) Assume the following options are currently available for dollars:

l Call option premium on dollars ¼ £0.04 per unit. l Put option premium on dollars ¼ £0.03 per unit. l Call option strike price ¼ £0.64.

l Put option strike price ¼ £0.62.

l One option contract represents $50 000

a. Construct a diagram for a long strangle using these options.

b. Determine the breakeven point(s) for a strangle.

c. If the spot price of the dollar at option expiration is £0.63, what is the total profit or loss to the strangle buyer?

d. If the spot price of the dollar at option expiration is £0.51, what is the total profit or loss to the strangle writer?

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Financial Management, Finance

Category:- Financial Management
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