Speculating with currency options. Barry Egan is a currency speculator. Barry believes that the Japanese yen will fluctuate widely against the euro in the coming month. Currently, one-month call options on Japanese yen (¥) are available with a strike price of 0.0085 euro and a premium of 0.0007 euro per unit. One-month put options on Japanese yen are available with a strike price of 0.0084 euro and a premium of 0.0005 euro per unit. One option contract on Japanese yen con- tains ¥6.25 million. (See Appendix 5B in this chapter.)
a. Describe how Barry Egan could utilize these options to speculate on the movement of the Japanese yen.
b. Assume Barry decides to construct a long strangle in yen. What are the breakeven points of this strangle?
c. What is Barry's total profit or loss if the value of the yen in one month is 0.0070 euro?
d. What is Barry's total profit or loss if the value of the yen in one month is $0.0090 euro?