Chapter 01 · Section 1.1
Watchmaker Case Study - Question 5
What happens if he does not receive the order and the price rises?
a) He no longer needs to buy the 1,000 additional ounces and will therefore not take advantage of the right conveyed by the option.
b) He will act exactly the same way as if he had received the order.
c) He will buy gold at $400/oz and sell it at the higher market price.
d) He will be obliged to buy gold at $400/oz.
The Watchmaker bought the option in order to have the choice of whether to buy 1,000 ounces of gold at $400 or not to buy it at all.