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.
c) do nothing because he is short the put.
It is the relationship between the exercise price and the spot price that determines whether it is profitable to exercise the option.