ADMI_Questions on options

1) Ashok purchased a 3 month European call option for 100 shares in XYZ limited at a premium
of Rs 30 per share with an exercise price of Rs.550. He also purchased a 3 month European
put option for 100 shares of the same company at a premium of RS. 5 per share with an
exercise price of Rs.450. The market price of the share on the date of this deal is Rs.500. The
price of the stock at the end of 3 months is Rs 350. Calculate Ashok’s profit or loss in this
deal.

2) Mr Investor is interested in purchasing equity shares of Mera Bharat Mahan (MBM) Limited
which are currently selling at Rs.600 each. He expects that the price of the share may go up
to Rs 780 or may go down in 3 months time. The chances of such variations occurring are
60% and 40% respectively. A European call option on the shares of MBM Ltd can be
exercised at the end of 3 months with a strike price of Rs 630. Calculate the following:

(A) What combination of shares and option should Mr Investor select if he wants a perfect
hedge?
(B) What should be the value of the option today (the risk free int rate is 10% pa)?
(C) What is the expected rate of return on the option?

3) Mr Sattodiya hears a rumour of Bharat Limited’s tie up with a multinational company. This
news has pushed up the price of Bharat Ltd’s shares. If the rumour is false the share price
may fall dramatically. To protect himself Sattodiya buys call and put options.

Buys 3 month call option (on 100 shares) with a strike price of Rs42/- at a premium of Rs2/- per
share. Also buys 3 month put option (on 100 shares) with a strike price of Rs.40/- at a premium of
Re1/- per share.

(i) Determine his position at the end of 3 months if the price moves up to Rs.43/-
(ii) Determine his position at the end of 3 months if the price goes down to Rs.36/-

4) The current market price of an equity share of Perfect Limited is Rs.420/- Within a period of
3 months, the max and mini price of it is expected to be Rs. 500 and Rs.400 respectively. If
the risk free rate of interest be 8% p.a what would be the value of a 3 month call option
under the Risk-Neutral method at the strike price of Rs.450/-
 5) Mr X has the following option position on the shares of Gamma Limited:

a) Purchased 3 month call option on 100 shares at a prem of Rs.30 per share – Strike 550
b) Purchased 3 month put option on 100 shares at a prem of Rs.5 per share – strike 450

The share is currently selling at a price of Rs 500. Determine the profit or loss if the price of the share
is (i) remains at 500 after 3 months , (ii) Falls to Rs. 350 after 3 months, (iii) rises to 600 after 3
months.