PROBLEMS ON OPTIONS

1. In July 2016, Mr. Manibhai purchased a September Call Option on stock of Infotech Ltd. at an exercise
price of Rs. 1,150 & a September Put Option on Biotech Ltd. at an exercise price of Rs. 520. If the prices
of shares of Infotech Ltd. & Biotech Ltd. in the month of September 2016 are as under:
Possibilities Infotech Ltd. Biotech Ltd.
A 1170 510
B 1150 520
C 1130 530
What is the moneyness of options? Show cash flow computations & suggest.

2. Ms. Intelligent bought October Call Option on shares of Dumb Ltd. with an exercise price of Rs. 1750.
What would you do on expiry date, if Dumb Ltd. then trades at Rs. 1725? What would you do on expiry
date, if Dumb Ltd. then trades at Rs. 1755?

3. Today on 2nd July 2016 S&P CNX Nifty is trading at 8150. Mr. Bazarwala is contemplating buying
option on September 2016 S&P CNX Nifty Index. From the below provided data compute moneyness,
intrinsic value & time value of S&P CNX Nifty Index Options. Comment on your calculations.
Sept. 2016 Call Premium Sept. 2016 Put Premium
Exercise Price (Xc) (Cpr) Exercise Price (Xp) (Pp)
1 7800 375 8500 385
2 8150 350 8150 360
3 8500 100 7800 110

4. Ms. Intelligent bought October Call Option on shares of Dumb Ltd. with an exercise price of Rs. 1750.
What is the intrinsic value of option, if Dumb Ltd. is trading at Rs. 1710? What is the intrinsic value of
option if Dumb Ltd. is trading at Rs. 1790?

5. Stock of ABS Ltd. is currently quoted on BSE at Rs. 135 & a Call Option on ABS Ltd. are available for
exercise price of Rs. 135. From the following information on likely prices of ABS Ltd. on expiry &
respective conditional probabilities of volatilities calculate option price.
Likely Prices Probability of Low Volatility Probability of High Volatility
115 0.10 0.30
125 0.20 0.20
135 0.30 0.10
145 0.20 0.20
155 0.10 0.30

6. Ms. Tejal buys a European Call option on stock of ABC Ltd. by paying option premium of Rs. 3 having
exercise price of Rs. 50. Calculate Intrinsic Value & Profit or Loss of Ms. Tejal for spot prices at expiry
of Rs. 46 to Rs. 55. Also present your calculation graphically.

7. Ms. Mandira buys European Put Option on stock of MNP Ltd. by paying option premium having exercise
price of Rs. 50. Calculate Intrinsic Value & Profit & Loss of Ms. Mandira for spot prices at expiry of Rs.
46 to Rs. 55. Also present your calculation graphically.

8. Mr. Ezee bought call option on Hard Ltd. with exercise price of Rs. 1950 at a premium of Rs. 109. If on
the expiry date Hard Ltd. trades at Rs. 1750; Rs. 1800; Rs. 1900; Rs. 1950; Rs. 2000; Rs. 2050; Rs. 2100;
Rs. 2150, what would be the pay-offs & profits of Mr. Ezee? Tabulate the pay-offs & also draw profit
graph.