Tarun purchases the following European Call options of TCS. He also purchases the following European put option of ACC. What decision he would take on expiry if TCS closes at ₹ 835 and ACC closes at ₹ 565, spot prices? I
CS Executive · Securities Laws and Capital Markets · PYQS · December 2022
Tarun purchases the following European Call options of TCS. He also purchases the following European put option of ACC. What decision he would take on expiry if TCS closes at ₹ 835 and ACC closes at ₹ 565, spot prices? Ignore premium paid. TCS 830 Call
Answer & Explanation:
Tarun has purchased a European call option for TCS with a strike price of ₹830. At expiry, the spot price of TCS is ₹835. A call option gives the holder the right to buy the underlying asset at the strike price. Tarun would exercise this call option because the spot price (₹835) is greater than the strike price (₹830). By exercising, he can buy TCS shares at ₹830 and immediately sell them in the market at ₹835, making a gain of ₹5 per share (₹835 - ₹830). Decision: Exercise the TCS 830 Call option.
Topics: Derivatives
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