Chapter 02 · Section 2.1

Exercising Options-4

Suppose Victor bought a PHLX July 45 DM put option and paid a premium of 3 cents. It is now July, at expiration. Deutsche Marks are trading at $.43/DM. Victor will probably:

a) exercise the option.
• b) do nothing because he cannot make a profit.
  No. Although you cannot make a profit, you may recover some of the premium you paid since you can sell your DM at a higher price than you would get on the spot market.
  c) do nothing because he is short the put.

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