A trader sells a put option. The put option requires him to buy AUD1 million at an exercise exchange rate of 0.9000 (USD/AUD). Calculate the trader's gross profit on expiry, assuming the exchange rate is 0.9300 at expiry.
A) zero
B) +USD30,000
C) +AUD30,000
D) -USD30,000

Question

Quizplus · Accepted Answer

Since the exchange rate at expiry (0.9300 USD/AUD) is higher than the exercise exchange rate (0.9000 USD/AUD), the put option will not be exercised by the holder, resulting in no transaction and thus no profit or loss for the trader.

A Trader Sells a Put Option