The shares of Paper Power Ltd. are presently quoted in the market at the rate of ₹504 per share. Abhay wants to play in the derivatives of Paper Power Ltd., as he holds the shares of the company. He decided to become the
CS Professional · Financial, Treasury and Forex Management · PYQS · June 2018
The shares of Paper Power Ltd. are presently quoted in the market at the rate of ₹504 per share. Abhay wants to play in the derivatives of Paper Power Ltd., as he holds the shares of the company. He decided to become the call option writer. The 3 months call options are quoted in the market at the rate of ₹505, with a premium of ₹5. The size of option is 100 shares of Paper Power Ltd. Work out Abhay's net payoff, if the prices of the shares on the exercise date is between ₹490 to ₹510, with intervals of price of ₹5.
Answer & Explanation:
Calculation of Net pay off as Call option Writer (Abhay), Exercise price ₹505, Premium ₹5 Market price Action by call option buyer Net pay off Premium Gross profit 490 Lapse 0 500 500 495 Lapse 0 500 500 500 Lapse 0 500 500 505 Indifferent 0 500 500 510 Exercise (500) 500 0
Topics: Derivatives
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