A trader buys a call at a premium of USD0.02 and a put option at a premium of USD0.01. The call option gives him the right to buy AUD1 million at an exercise exchange rate of 0.9000 (USD/AUD), whereas the put option gives him the right to sell AUD1 million at the same exercise exchange rate. Calculate the trader's net profit on expiry, assuming the exchange rate is 0.9500 at expiry.
A) +USD30,000
B) +USD10,000
C) +USD20,000
D) +USD50,000

Question

Quizplus · Accepted Answer

The Answer of A trader buys a call at a premium of USD0.02 and a put option at a premium of USD0.01. The call option gives him the right to buy AUD1 million at an exercise exchange rate of 0.9000 (USD/AUD), whereas the put option gives him the right to sell AUD1 million at the same exercise exchange rate. Calculate the trader's net profit on expiry, assuming the exchange rate is 0.9500 at expiry.
A) +USD30,000
B) +USD10,000
C) +USD20,000
D) +USD50,000

A Trader Buys a Call at a Premium of USD0