Chapter 02 · Section 2.1

Position Expectations

Victor is long 3 PHLX DM Options. Victor, as an investor, expects:

a) the exchange rate (US$ cents per DM) to fall.
b) the exchange rate (US$ cents per DM) to rise.
• c) the exchange rate (US$ cents per DM) to remain stable.
  No. An investor does not buy an option if he expects prices to remain stable. He would be unable to make a profit by buying and selling at the same price.
  d) We cannot tell from this information what price movement he expects.

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