Mohan purchased a 3 month call option for 100 shares in PQR Ltd. at a premium of ₹ 30 per share, with an exercise price of ₹ 550. He also purchased a 3 month put option for 100 shares of the same company at a premium of
CS Executive · Capital Market and Securities Laws · PYQS · June 2024
Mohan purchased a 3 month call option for 100 shares in PQR Ltd. at a premium of ₹ 30 per share, with an exercise price of ₹ 550. He also purchased a 3 month put option for 100 shares of the same company at a premium of ₹ 10 per share with an exercise price of ₹ 500. Calculate the profit or loss that Mohan would make assuming that the market price falls to ₹ 400 at the end of 3 months.
Answer & Explanation:
Since the market price at the end of 3 months falls to ₹ 400 which is below the exercise price i.e. ₹ 550 under the call option, the call option will not be exercised. Only put option becomes viable. The gain will be: ₹ Gain per share (₹500 - ₹400) 100 Total gain per 100 shares @ 100 per share 10,000 Cost or premium paid (₹ 30 x 100) + (₹ 10 x 100) 4,000 Net gain 6,000
Topics: Derivatives Market
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