What are the Option contracts? You are required to compute the profit/loss for each investors in below option contracts: (i) Mr. X writes a call option to purchase share at an exercise price of ₹60 for a premium of ₹12 p

Options Contract give its holder the right, but not the obligation, take or make delivery on or before a specified date at a stated price. Option Contracts are classified into two types on the basis of which party has the option: Call Option - A call option is with the buyer and gives the right to take delivery. The buyer of the call option has a right to buy the underlying asset from the option seller. Put Option - The put option is with the seller and the option gives the right to take delivery. The buyer of the put option has a right to sell the underlying asset to the option seller. (i) For Mr. X (Writer of Call Option): Exercise Price: ₹60 Premium Received: ₹12 Share Price at Expiry: ₹62 Since the share price (₹62) is above the exercise price (₹60), the buyer will exercise the option. The writer (Mr. X) will have to sell the share at ₹60, while the market price is ₹62, incurring a loss of ₹2 per share. However, Mr. X received a premium of ₹12. Profit/Loss = Premium Received - (Share Price at Expiry - Exercise Price) Profit/Loss = ₹12 - (₹62 - ₹60) = ₹12 - ₹2 = ₹10 Mr. X's Profit = ₹10