From the perspective of the writer of a put option written on €62,500.If the strike price is $1.55/€,and the option premium is $1,875,at what exchange rate do you start to lose money?
A)$1.52/€
B)$1.55/€
C)$1.58/€
D)none of the options

Question

Quizplus · Accepted Answer

For the writer of the put option, the breakeven point is the strike price minus the option premium. In this case, the breakeven rate is $1.55 - $1,875/$62,500 = $1.52/€. 
If the exchange rate drops below $1.52/€, the writer will start to lose money, as the buyer can exercise the option and sell euros at the higher strike price of $1.55, resulting in a loss for the writer. Therefore, the best choice is A) $1.52/€.

From the Perspective of the Writer of a Put Option