Chapter 01 · Section 1.1

Watchmaker Case Study - Question 4

Suppose he receives the order and the price rises to $420/oz. What should he do?

a) The option allows the watchmaker to buy 1,000 ounces of gold at $400/oz.
b) Buy the 1,000 ounces at the market price and pay $420/oz.
c) Fulfill his obligation to sell 1,000 ounces at $420/oz.
d) Make use of the right conveyed in the option and buy gold at $400/oz.
e) Fulfill his obligation to buy 1,000 ounces at $420/oz.