Call Option Rejection
Option
to buy or call option will not be exercised in the market price at exercise
date is lower than exercise, because you can simply buy the commodity or
financial in the market at lower price, and your loss is equal to the option price
only.
Call option Rejection Example
Pound
call option of Euro = 1000
Strike
price $/Pound = 1.6
Market
price at Strike Date = 1.5
Solution
Call
Option 1000 x 1.6 = $ 1600
Market
Price Cost 1000 x 1.5 = $ 1500
Call
option is more expensive, the market purchase, therefore market purchase is
preferred in this example i.e. buy euro in the market at $ 1500
