Eknath, a risk averse investor is planning to take advantage of market rumour that in the upcoming budget, the Government is likely to announce some economic package including production linked incentive (PLI) scheme for

If price of stock fell to ₹90 Cost of Call Option = (₹5 per share) x (1000 shares i.e. lot of call option) = ₹5000 Cost of Put option = (₹4 per share) x (1000 shares i.e. lot of put option) = ₹4000 Total premium paid = ₹5000 + ₹4000 = ₹9000 The price of the stock fell to ₹90. The market price is lower than the strike price, the investor will lose the call premium and gain in put option. Eknath has a right to sell 1000 shares at ₹105, the price of which is ₹90. By exercising put option, Eknath will earn ₹105 - ₹90 = ₹15 per share (lot of 1000 shares in put option). Net Profit = profit on put - Cost/loss on premium paid on call & put option = (₹15 per share on put x 1000 shares) - ₹9000 = ₹15000 - ₹9000 = ₹6000/-