Assume That a Speculator Purchases a Put Option on British

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.

Correct Answer:

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