What are the Option contracts? You are required to compute the profit/loss for each investors in below option contracts: (ii) Mr. Y buys a put option at an exercise price of ₹80 for a premium of ₹8.50 per share. The shar

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. (ii) For Mr. Y (Buyer of Put Option): Exercise Price: ₹80 Premium Paid: ₹8.50 Share Price at Expiry: ₹60 Since the share price (₹60) is below the exercise price (₹80), the buyer (Mr. Y) will exercise the option to sell at ₹80. He can buy the share from the market at ₹60 and sell it at ₹80, making a gain of ₹20 per share. However, he paid a premium of ₹8.50. Profit/Loss = (Exercise Price - Share Price at Expiry) - Premium Paid Profit/Loss = (₹80 - ₹60) - ₹8.50 = ₹20 - ₹8.50 = ₹11.50 Mr. Y's Profit = ₹11.50