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...
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.
b) be obliged to buy gold at the $400/oz specified in the option contract.
c) buy the gold on the spot market at the lower market price of $380/oz.
If the order is received, the watchmaker will start production. For that, it will need to buy around 1,000 ounces of gold.