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“The premium cost of the option will obviously depend on the exercise price chosen. Buying a call option at 93.50 should be more expensive than buying at 95.00, as the company has a greater chance of a profit when it comes to closing out its futures position.”
sir am not sure what they really mean by the last line. My understanding was that higher premium is charged on an exercise price of 93.5 as compared to an exercise price of 95, was because the former(93.5 one) gave us the right to buy it at a lower rate. lower the buying rate the better.
May be my understanding is very naive and you can shed some light on this topic.
Many thanks! really appreciate your efforts sir:)
You are saying the same thing as the part that you quote 🙂
If the call option is exercised then futures will be bought at the exercise price and immediately sold at whatever the current price of the future is – the profit is the difference between the futures price and the exercise price.
The lower the exercise price, the lower the amount paid for the future and therefore the greater the profit.
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