First, we'll look at the Put option. The current spot price of the currency is . This means 1 GBP = USD. So the USD/GBP rate must drop to below the strike of for this option to be in-the-money.

Options trade on the Chicago Board of Options Exchange and the prices are reported by the Option Pricing Reporting Authority (OPRA):

If you exercise your Microsoft option, you will buy Microsoft stock for the strike price, . for 20 dollars. Even when the stock would be trading at 100 or at 15 or at 1 dollar, the price for which you buy when you exercise this option is 20 (of course it does not make sense for you to exercise the option if the stock is at 15, as the option would be out of the money , and you better buy the stock in the stock market for 15 rather than for 20 using your option).

SPOT options are vanilla put and call options whose value is set by the conditional scenario, not just the price and the expiration date.

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Do remember when you exercise a long option, the money you make is equivalent to the intrinsic value of an option minus the premium paid. Hence to answer the above question we need to calculate the intrinsic value of an option, for which we need to pull up the call option intrinsic value formula from Chapter 3.

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An option buyer pays a premium , which is the cost of the option, for the right to buy or sell an underlying asset at the strike price.

In options trading, terms such as * in-the-money* , * at-the-money* and * out-of-the-money* describe the moneyness of options.

The option premium is always greater than the intrinsic value. This extra money is for the risk which the option writer/seller is undertaking. This is called the Time value.

The strike price determines whether an option has intrinsic value. An option's premium (intrinsic value plus time value) generally increases as the option becomes further in-the-money. It decreases as the option becomes more deeply out-of-the-money.

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Of course if Gold was below your strike price of $1,500 at expiation it would be worthless and you would lose your $1,000 premium plus the commission you paid.

Conversely, for put options, the higher the strike price, the more expensive the option. The following table lists option premiums typical for near term put options at various strike prices when the underlying stock is trading at $50