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Put Option on British Pounds

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Assume that a speculator purchases a put option on British pounds (with a strike price of $1.50) for $.05 per unit. A pound option represents 31,250 units. Assume that at the time of the purchase, the spot rate of the pound is $1.51 and continually rises to $1.62 by the expiration date. The highest net profit possible for the speculator based on the information above is:
a) $1,562.50
b) -$1,562.50
c) -$1,250.00
d) -$625.00.

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Solution Summary

The solution explains how to determine the profit from a put option with calculations and the answer.

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