
CURRENCY OPTIONS 237
additional income for a foreign currency holding that is not expected to change significantly
in value in the near future. However, speculators write calls without owning the underlying
foreign exchange. Such calls are known as naked calls or uncovered calls. The main idea behind
writing naked calls is to speculate on changes in the foreign exchange rate and earn a profit.
However, such speculative strategy involves a high degree of risk.
The profit for the call option writer can be calculated as follows:
Profit = Premium – (Spot rate of the underlying currency – Strike price)
The Payoff Profile for the Put Option Buyer ...