Athens Greece
Posts: 2 since Oct 2015
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I have trouble understanding how those options are priced. To be more specific, I'll give an example.
I buy the following option:
PUT EUR/USD (Buy USD, Sell EUR)
Strike Price: 1.10
Expiry Date: 01 MARCH 2016
Price: $0.02625
Contract Size: EUR 100,000
Actually, if I input price 0.02625 and quantity 1 to my online broker, it presents me as final price: $2.625, so I suppose that I buy 100 contracts (and therefore I have the right to buy 11,000,000 USD for 10,000,000 euros)
Now suppose that on 01 March 2016, the current rate is 1.05 USD for 1 EUR. According to the data above, how much should my profit be? I would expect it to be:
USD 500,000 from the formula: (100 contracts)*[(100,000 EUR)*(1.10 USD)-(100,000 EUR)*(1.05 USD)]
On the other hand, it's impossible to make such a profit with a $2 investment, so what have I understood wrong about those options?
For more info about the options I'm asking about, you can check the EUREX FX Options webpage (can't post it here due to junk filter).
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