Options

Call

U/L: Axis bank

Maturity: Sep = T

Predetermined price = Strike Price =X = K = 800

Today, Komal is buyer of call, Shubh is seller / writer, therefore Komal has right to buy and Shubh
has obligation to sell, Komal purchased at a premium.

At expiry, Axis bank price = 900, Exercise of option

At expiry, Axis bank price = 500, Not exercised

Call is exercised when ST>X,

Payoff to buyer / Long = Max(0, ST-X)

When ST = 900: = Max(0, 900-800)

= 100

When ST = 500: = Max(0, 500-800)

=0

Payoff to seller / Short / Writer = (Max(0, ST-X))*-1

When ST = 900: = (Max(0, 900-800))*-1

= -100

When ST = 500: = (Max(0, 500-800))*-1

=0

Pay off table for call buyer

ST Premium Payoff Net + / -

500 -100 Max(0, ST-X) -100
Max(0,500-1400) = 0
600 -100 Max(0,600-1400) = 0 -100
700 -100 0 -100
800 -100 0 -100
900 -100 0 -100
1000 -100 0 -100
1100 -100 0 -100
1200 -100 0 -100
1300 -100 0 -100
1400 -100 0 -100
1500 -100 100 0
1600 -100 200 100
1700 -100 300 200
 1800 -100 400 300
1900 -100 500 400
2000 -100 600 500

Put option

Buyer / Adwait has right to sell U/L within maturity at a X price.

Seller / Shashank has obligation to buy U/L within maturity at a X price.

ONGC , X = 120

ST = 150, not exercised

ST = 100, exercised

Put is exercised when ST<X,

Payoff to buyer / Long = Max(0, X-ST)

Payoff to seller / Short = Max(0, X-ST)*-1

Adwait purchased 120 put @ Rs. 10 written on ONGC from Shashank. Show pay-off table and a
diagram for both.