Question

Trader $\mathrm{A}$ enters into a forward contract to buy an asset for $$\$ 1,000$$ in one year. Trader $\mathrm{B}$ buys a call option to buy the asset for $$\$ 1,000$$ in one year. The cost of the option is $$\$ 100$$. What is the difference between the positions of the traders? Show the profit as a function of the price of the asset in one year for the two traders.

   Trader $\mathrm{A}$ enters into a forward contract to buy an asset for $$\$ 1,000$$ in one year. Trader $\mathrm{B}$ buys a call option to buy the asset for $$\$ 1,000$$ in one year. The cost of the option is $$\$ 100$$. What is the difference between the positions of the traders? Show the profit as a function of the price of the asset in one year for the two traders.
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Options, Futures, and Other Derivatives
Options, Futures, and Other Derivatives
John C. Hull 10th Edition
Chapter 1, Problem 31 ↓

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This means that Trader A is obligated to buy the asset for $1,000 regardless of the price of the asset in one year. Trader B buys a call option to buy the asset for $1,000 in one year. This means that Trader B has the right, but not the obligation, to buy the  Show more…

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Trader $\mathrm{A}$ enters into a forward contract to buy an asset for $$\$ 1,000$$ in one year. Trader $\mathrm{B}$ buys a call option to buy the asset for $$\$ 1,000$$ in one year. The cost of the option is $$\$ 100$$. What is the difference between the positions of the traders? Show the profit as a function of the price of the asset in one year for the two traders.
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