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QUESTION NO.35 State if each one of the following is in the money, at the money or out of the money
` Option Stock/Market Price Exercise Price
Call 55 60
Call 50 50
Call 105 110
Call 35 40
Put 100 110
Put 115 105
Put 15 12
Put 20 25

QUESTION NO.36The shares of TATA power are selling at Rs. 104 per share.Ravi wants to buy three months call
option at a premium of Rs. 5 per option. Exercise price is Rs. 105. Six possible prices per share on expiration date ranging
from 95 to 120, with intervals of Rs. 5 are possible.
(i) What is Ravi's pay off (net profit) as call option holder (Call Buyer) on expiration? (ii) Draw the pay
off(net profit) graph of Call Buyer?
(iii) What is the call writer's (Call Seller)payoff (net profit) on expiration?
(iv) Draw the pay off (net profit) graph of Call Seller ?

QUESTION NO.37A (Exam Question)(Study Material)(12 Marks)(RTP)We have been given the following infor-
mation about XYZ company’s shares and call options : Current Share price = Rs. 165,Option Exercise Price = Rs.
150,Risk Free Interest Rate = 6% (continuous compounded),Time to Option Expiry = 2 years,Volatility of Share Price
(Standard Deviation) = 15% .Calculate Value or Premium of the Call Option.Use BSM

QUESTION NO. 38 A investor buys a put option with an exercise price of Rs. 200 for Rs. 15. What is the maximum loss
that he could incur? What is the maximum profit which could accrue to him? Also determine break even stock price? What
is the position for the put writer?

QUESTION NO.39 Mr. Ganesh is considering to buy put and call options on ITC shares with spot price Rs. 800. From
the following data determine intrinsic and time values:
Calls Puts
1 790 25 810 20
2 800 15 800 10
3 810 5 790 8
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QUESTION NO.40 Equity shares of A Ltd. are being currently sold for Rs. 90 per share. Both the call option and the put
option for a 3-month period are available for a strike price of Rs. 97 at a premium of Rs. 3 per share and Rs. 2 per share
respectively. An investor wants to create a straddle position in this share. Find out his net pay off at the expiration of the option
period, if the share price on that day happens to be Rs. 90 or Rs. 105.

QUESTION NO.41 A call option on H Ltd’s stock has an exercise price of Rs. 20. The stock price on expiry ranges
between 16 and 24 with intervals of 2. Compute the value or premium of the call.

QUESTION NO.42(Supplementary Study Material)Given the following :Strike Price = Rs.180,Current Price of one
share = Rs.200,Risk free rate of interest=10% p.a.c.c.Calculate theoretical minimum price or premium of a call option
expiring after one year.

QUESTION NO.43(Supplementary Study Material)Given the following :Strike Price = Rs. 400,Current stock price=
Rs. 370,Time untill expiration = 6 months,Risk free rate of interest=5% p.a.c.c.Calculate theoretical minimum price or
premium of a put option.

QUESTION NO.44(Exam Question)(5 Marks) Reliance shares are currently selling at Rs. 100. The price in the next
six months may jump to Rs. 115 or fall to Rs. 90. What is the value or premium of a six month call option with an exercise
price of Rs. 100 and rate of return of 10% p.a.Use Risk Neutral Approach .

QUESTION NO.45A(Supplementary Study Material) Market prices of A Ltd. are expected to have the following
probability distributions with respect to market price per share after 6 months
Probability Expected Market Price after 6 months
.05 170
.20 190
.40 200
.20 220
.15 240
Call Options are available for an exercise rate of Rs. 200 and expiration 6 months from now.
(i) What is the expected market price per share after 6 month
(ii)What is the expected value of option price(premium) for A Ltd. for same duration.(i.e as on expiry )

QUESTION NO.46(Exam Question)(8 marks)Consider a two year call option with a strike price of Rs. 50 on a stock
the current price of which is also Rs. 50. Assume that there are two time periods of one year and in each year the stock
price can move up or down by equal percentage of 20%. The risk free interest rate is 6%. Using binomial option model(Risk
Neutral Approach),calculate the probability of price moving up and down.Also draw a two step binomial tree indicating
prices and payoffs(option premium) at each node.

QUESTION NO.47 H Ltd. has an exercise price of Rs. 40. The stock price on expiry ranges between 20 and 60 with
intervals of 10. Compute the value/premium of the put.

QUESTION NO.48 On 01/04/05, price of E Ltd. share is Rs. 600. In three months, this price can go up by 10% or can
come down by 10%. In next 3 months, the price can again go up by 5% or can come down by 5%. The risk-free rate of
interest is 8% p.a. continuously compounded. Determine value(premium) of 6 month call and put as on today at strike price
Rs. 588.

QUESTION NO.49 The current market price of XYZ Ltd. is Rs. 30. Miss Namita buys three months put option at a
premium of Rs. 5 per option. The exercise price is Rs. 33. Six possible prices per share on the expiration date ranging from
Rs. 25 to Rs. 50 with intervals of Rs. 5 are possible.
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(i) What is Namita's pay-off as a put holder on expiration?
(ii) Draw the pay off graph?
(iii) What is the put writer's pay off on expiration?
(iv) Draw the pay off graph.?

QUESTION NO.50 An investor buys a call option with an exercise price of Rs. 100 for Rs. 10. What is the maximum
loss that he could incur? What is the maximum profit which could accrue to him? Determine break-even stock price? What
is the position for the call writer.

QUESTION NO.51(Exam Question)(5 Marks)Equity share of PQR Ltd. is presently quoted at Rs.320. The Market
Price of the share after 6 months has the following probability distribution:
Market Price Rs. 180 260 280 320 400
Probability 0.1 0.2 0.5 0.1 0.1
A put option with a strike price of Rs.300 can be written. You are required to find out expected value or premium of option
at maturity (i.e. 6 months)

QUESTION NO.53(Exam Question)(6 Marks)A call and put exist on the same stock each of which has EP of Rs. 60.
They now trade for:
Market price of Stock or stock index Rs. 55
Market price or premium of call Rs. 9
Market price or premium of put Re. 1
Calculate the expiration date cash flow if contract is exercised OR not exercised,Gross Profit(Investment Value),and net
profit from:
(i)Buy 1.0 call(ii)Write 1.0 call (iii) Buy 1.0 put (iv)Write 1.0 put
for expiration date stock prices of Rs. 50, Rs. 55, Rs. 60, Rs. 65, Rs. 70.

QUESTION NO.54Current Price Rs.100; Strike price of 3 months call option Rs. 95. After 3 months, price may be
Rs.150 or Rs.70. Risk free rate:12% p.a. Find Option Premium by Binomial Model?

QUESTION NO.55 The current market price of the equity shares of Sati Ltd. is Rs. 70 per share. It may either be Rs.
90 or Rs. 50 after a year. A call option with a strike price of Rs. 66 (time 1 year) is available.Calculate Delta ?

QUESTION NO.56( Supplementary Study Material )ABC Ltd. Share price as on date is Rs. 200, 6 months from
now the share price will be Rs. 178 and Rs. 214 per share. A call option of these share can be exercised at the end of the
period at exercise price of Rs. 205 per share. The risk free interest rate is 10% p.a. (i.e. 5% for 6 months).
(a) Find out the perfectly hedged situation through shares and the call option.
(b) Compute value of holding under each of the two possibilities on expiry.
(c) Estimate the Option premium (option price) at the beginning .

QUESTION NO.58(Exam Question)An investor purchased Reliance November Future (600 shares Tick size/lot size)
at Rs. 542 and write a Rs. 580 November call option at a premium of Rs. 6 (600 shares Tike size/lot size). As on
November 20 spot price rises and so the future price and the call premium. Future price rises to Rs. 575 and call premium
rises to Rs. 12. Find out profit/loss of the investor, if he/she settles the transaction on that date and at stated prices.
Brokerage is 0.05% for the transaction value of futures and strike price net of call premium for option.
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QUESTION NO.59The current spot price of share of ABC Ltd. is Rs. 121.00 with strike price Rs. 125.00 and Rs.
130.00 are trading at a premium of Rs.3.30 and Rs.1.80 respectively. Mr. X, a speculator is bullish about the share price
over next six months. However, he is also of belief that share price could also go down. He approaches you for advice, you
are required to:
(a) Suggest a strategy that Mr. X can adopt which puts limit on his gain or loss.
(b) How much is maximum possible profit.
(c) Draw out a rough diagram of the strategy adopted.
(d) What will be break-even price of the share?
[Assume - No brokerage fees and interest cost/gains and students can take CMP as on expiry as per their own choice]