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What was mike net profit on the call option

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Reference no: EM132419652

Problem: Answer the following questions regarding selling currency call options.

Mike sold a call option on Canadian dollars for $0.01 per unit. The strike price was U.S. $0.76, and the spot rate at the time the option was exercised was U.S. $0.82. Assume Mike did not obtain Canadian dollars until the option was exercised. Also assume that there are 50,000 units in a Canadian dollar option.

Required:

Question 1: What was Mike's net profit on the call option?

Question 2: What is the difference between selling a covered call option and a naked call option? Please Show all work, formulas, and assumptions when answering the question in the space provided.

Reference no: EM132419652

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