Reading 35 question 7, calculation of option premium 300, understand, especially, expression

mdfb79

Hi folks,
I am stuck with question seven in Reading 35, especially the calculation of the option premium gives me a hard time.
In the solution they calculate for the March 1.5 calls:
15,000,000/1,5 * 0,03=300,000 Dollar resulting in 300,000/1,5=200,000 pounds unsing the current spot rate.
I don’t understand the expression 15,000,000/1.5. Is the 1.5 the strike price? If yes, in the next calculation they should have used 1.55 and 1.6 strikes, but they haven’t.
Did anyone have the same question and already the answer?
Thanks for any answer and good luck to all!

amqata

Hm, but why do I apply the spot rate of 1.5 $/GBP two times in the formula?

RepoToronto

Why are you reading the books when your status is Passed level III

rgonzalez

Hi folks,
I was a few days off. Thanks for your comments, I got it.
The call prices are in dollar and so is the amount we receive. To get the total option premium we have to
1. calculate the calls we need. We have to convert the 15,000,000 $ into pounds. Because we can by the exact amount off calls, the contract value is 1.
So: 15,000,000$ divided by the current spot rate 1.5 gives us 10,000,000 pounds, the amount we need calls for.
2. convert the Call price into pount:
0,015 $ divided by the current spot rate 1.5 dollar/pound = 0,01 pounds - This ist the price of the 1.55 strike call in pounds
Result: 10,000,000 pounds multiplied by 0,01 pounds = 100,000 pounds, the premium to be paid for the 1.55 calls
Btw: I am a level III candidate. I somehow messed up my profile, hope it’s fine now.