Calandra Panagakos works for CIBC Currency Funds in Toronto. Calandra is something of a contrarian -- as opposed to most of the forecasts, she believes the Canadian dollar (C$) will appreciate versus the U.S. dollar over the coming 90 days. The current spot rate is $0.6750/C$. Calandra may choose between the following options on the Canadian dollar:
Option
Put on C$
Strike Price
$0.7000
Premium
$0.00003/S$
Option
Call on C$
Strike Price
$0.7000
Premium
$0.00049/S$
a. Discuss whether Calandra should buy a put on Canadian dollars or a call on Canadian dollar?
b. Determine what is Calandra's breakeven price on the option purchased in part (a)?
c. Using your answer from part (a), determine what is Calandra's gross profit and net profit (including premium) if the spot rate at the end of 90 days is indeed $0.7600?
d. Using your answer from part (a), determine what is Calandra's gross profit and net profit (including premium) if the spot rate at the end of 90 days is $0.8250?