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if it’s put option should not it be like this
Strike price 1.6
Sell of options 1500000
Net result 1480424.144
instead of whats given in exam kit –
£ payment = 2,400,000/1.60 = 1,500,000 or 24 contracts
24 put options purchased
Premium payable = 24 × 0.0208 × 62,500 = US$31,200
Premium in £ = 31,200/1.5938 = £19,576
Total payments = £1,500,000 + £19,576 = £1,519,576
Whether or not they exercise the option they have to end up paying money. If the exercise the option then they convert the $’s at the exercise price. If they don’t exercise then they end up converting at whatever spot happens to be.
Therefore if they exercise the option they end up paying pounds and as always will end up paying the premium also. Therefore the final total payment is the total of the two.
yes but it should be 1500000-19575.85644= 1480424.144
as put is sell so it should be + , then why is it given –
No. They are paying 1500000 and they are paying 19575. So the total payment is the two added together.