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Hello Sir, in your lecture regarding the stated topic, you mentioned how European options aren’t that limiting because they can be traded and thus sold at any time during a month. I have several questions regarding this.
1) Is it like we can claim the difference only at the end of months? And claiming the difference isn’t an option if the transaction isn’t on the last day of the month? (that u can’t claim the difference between the spot rate and options rate on 30th march if our transaction date is 10th April)
2) On the date of the transaction (on the last day of the month), since we have both the option of claiming the difference or selling the option, which one should we go for? or is it that we go for whichever will garner us the higher profit?
Thanks a lot!1. You can only exercise the options at the end of the relevant month, but you can sell the options to someone else whenever you want. (But in the exam, for any calculations we only deal with actually exercising them)
2. In the exam, you would exercise (and if you think about it, selling them or exercising them would be bound to give the same result anyway).
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