What are the Option contracts? You are required to compute the profit/loss for each investors in below option contracts: (iv) Mr. XY writes a put option with an exercise price of ₹70 for a premium of ₹8 per share. The pr

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. (iv) For Mr. XY (Writer of Put Option): Exercise Price: ₹70 Premium Received: ₹8 Share Price at Expiry: ₹48 Since the share price (₹48) is below the exercise price (₹70), the buyer of the put option will exercise it. The writer (Mr. XY) will have to buy the share at ₹70, while the market price is ₹48, incurring a loss of ₹22 per share. However, Mr. XY received a premium of ₹8. Profit/Loss = Premium Received - (Exercise Price - Share Price at Expiry) Profit/Loss = ₹8 - (₹70 - ₹48) = ₹8 - ₹22 = -₹14 Mr. XY's Loss = ₹14