Chapter 02 · Section 2.1

Long - IMM Calls 2

Now let us study a slightly different scenario:

Suppose Victor entered a long position in 4 IMM March 45 DM calls in December. Now it is February, and the Deutsche Mark trades at $.44/DM.

As you can see, there is a difference of 1 cent between the exercise price and the $/DM rate. Victor can offset (liquidate) this position by selling:

a) IMM March 44 DM calls.
Yes. As a result, he would have the right to purchase DM at $.45/DM and at the same time have an obligation to sell DM at $.44/DM. The two positions partially compensate each other, but they are not offsetting. Continue
b) IMM March 45 DM calls.