Chapter 01 · Section 1.1
Watchmaker Case Study - Question 3
If the Watchmaker receives the order and the gold price declines to $380/oz the Watchmaker will...
b) be obliged to buy gold at the $400/oz specified in the option contract.
No. Remember the buyer of an option has the right to choose whether or not he will use the terms of the option. He is not obliged to do anything.
c) buy the gold on the spot market at the lower market price of $380/oz.
a) take advantage of the right conveyed by the call option and will buy the 1,000 ounces of gold at the $400/oz specified in the option contract.
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