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i just want to know that in the lecture above when we exercised the option we claimed the difference 22 x 31250 x (1.4750-1.4100) just for the sake of clearing my concept we just assume that for instance the strike price is less than the spot
Supposedly:
strike price 1.4050 spot 1.4100 -1.4120now we do the same 22 x 31250 x (1.4050 – 1.4100)/1.4100 so over here would we be paying the dealer the difference???? as we claimed the difference earlier in the lecture above, And if we would be paying the difference than we have to buy the $ so we will be using buy rate to convert $ into pounds.
please explain me about this.
If exercising the option would result in a loss, then the option would not be exercised and the conversion would just be at whatever the spot turned out to be.
The whole point about options is that they give the right to convert at a fixed rate, but you are not obliged to exercise them.
ok well i understand that but i just want to know what if we do exercise the option and as mentioned above do we have to pay that difference as we claimed it in the lecture i mentioned above just assume that only for the sake of assumption
If you did exercise the option then you would have to pay in the difference (but it would be a rather silly thing for someone to do 🙂 )
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