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?
e) Fulfill his obligation to buy 1,000 ounces at $420/oz.
No. Remember that the option buyer has the right to choose whether or not to make use of the rights conveyed by the option. Therefore, he is not obliged to do anything.
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.