Chapter 02 · Section 2.1
Exercising Options-2
Suppose Victor bought a PHLX July 45 DM call option and paid a premium of 3 cents. It is now July, at expiration. Deutsche Marks are trading at $.50/DM
Victor could reasonably:
a) exercise the option.
b) do nothing because he cannot make a profit.
c) do nothing because he is short the call.
To determine whether or not it would be profitable to exercise the option the investor needs to consider the current value or spot price of the underlying and compare it to the "cost" of the underlying using the option.
The "cost" of the underlying asset using options is the premium paid plus the exercise price.