Reska, Inc., has constructed a long euro straddle. A call option on euros with an exercise price
Question:
Reska, Inc., has constructed a long euro straddle. A call option on euros with an exercise price of $1.10 has a premium of $.025 per unit. A euro put option has a premium of $.017 per unit. Some possible euro values at option expiration are shown in the following table. (See Appendix B in this chapter.)
Value of Euro at Option Expiration | ||||
$.90 | $1.05 | $1.50 | $2.00 | |
Call | ||||
Put | ||||
Net | ||||
a. Complete the worksheet and determine the net profit per unit to Reska Inc. for each possible future spot rate.
b. Determine the break-even point(s) of the long straddle. What are the break-even points of a short straddle using these options?
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a Value of Euro at Option Expiration 90 105 150 200 Call 025 025 375 875 Put 183 ...View the full answer
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