You have $75,000 that you want to use to speculate in Swiss franc (SF) options. The spot rate is SF0.9662/$. You think that, at this rate, the SF is underpriced and, therefore, you expect it to substantially appreciate against the dollar in the coming few weeks. You decide to use your $75,000 to act on your expectations. The SF three-week calls and puts with an exercise price of $1.0564/SF are selling for (i.e. premiums are) $0.0240/SF and $0.0280/SF respectively. (Each SF contract calls for the exchange of SF62,500)

Would you buy call or put contracts? Explain your answer in your own words. not paragraph please.

Assume that you buy 32 put contracts. If at the end of three weeks the spot rate is SF0.9880/$, calculate the total payoffs and profit/loss from your investment.

Repeat the part above assuming you had bought 38 call contracts instead of 32.

Answer rating: 100% (QA)

In this situation I would buy put contracts because the call option premium is lower than the put op... View the full answer