Exercise questions on Call and Put Options

Q1. Mr. A purchases a ‘Call Option’ to buy 100 XYZ shares. The option price is Nu. 10 per XYZ shares.
Strike price is Nu. 100. The maturity period is one month and the option style is European. Will you
exercise the option, If the Market price is

i. Nu 90
ii. Nu 100
iii. Nu.105
iv. Nu.110
v. Nu.115
vi. Nu.125

You are also required to draw the payoff diagram both for the buyer and the seller.

Q2. Mr. A purchases a ‘Call Option’ to buy 100 ABC shares. The option price is Nu. 5 per ABC shares.
Strike price is Nu. 65. The maturity period is one month and the option style is European. Will you
exercise the option, If the Market price is

i. Nu 64
ii. Nu 66

You are also required to draw the payoff diagram both for the buyer and the seller.

Q3. Mr. B purchased a ‘Put Option’ for 100 shares of ABC shares. If the market price i) Nu. 69, ii) Nu.
70, iii) Nu.71 iv) Nu.73. . Calculate gains or losses and also illustrate the scenarios with the help of a
payoff diagram? Use the following information to solve the above case.

a) SP = Nu.70
b) Option Price =Nu.3 share
c) Option Type = European
d) Expiry = After a month

Q4. Mr. A purchased a ‘Call Option’ for 100 shares of ABC shares. If the market price is i) Nu. 69, ii)
Nu. 70, iii) Nu.71 iv) Nu.73. Calculate gains or losses and also illustrate the scenarios with the help
of a payoff diagram? Use the following information to solve the above case

a) SP = Nu.70
b) Option Price =Nu.3 per share
c) Option Type = European
d) Expiry = After a month

Q5. Mr. A purchases a call option to purchase 100 shares of XYZ Corporation. Assuming if market
prices are Nu. 64, Nu. 65, Nu.66. Nu.67, Nu.69 and Nu.70 Calculate gains or losses and also illustrate
the scenarios with the help of a payoff diagram? Use the following information to solve the above
case.

a) SP = Nu.65
 b) Option Price =Nu.5 per share
c) Option Type = European
d) Expiry = After a month (5 th Nov)

Q6. Mr. A purchases a Put option to purchase 100 shares of XYZ Corporation. Assuming if market
prices are Nu. 64, Nu. 65, Nu.66. Nu.67, Nu.69 and Nu.70 Calculate gains or losses and also illustrate
the scenarios with the help of a payoff diagram?

a) SP = Nu.65
b) Option Price =Nu.5 per share
c) Option Type = European
d) Expiry = After a month (5 th Nov)

Q7. Consider a December call option contract on CAD 100,000 with a strike price (E) of
CAD/US$1.08. The premium (P) is CAD/US$0.01. Calculate the gain/loss on the contract for the
buyer for different spot prices on the maturity date. Also measure the maximum gain he receives
and maximum loss he incurs. Take the following four different spot prices (S) on the maturity date.
a. S = CAD/$1.06
b. S = CAD/$1.08
c. S = CAD/$1.09
d. S = CAD/$1.12

Q8. A company purchases a European call options contract on the euro at an exercise price of
€/$0.68. The contract expires in three months. The call premium is €/$0.02. Find the profit or loss for
a buyer and the seller of the call option contract under each of the following spot prices (S) on the
expiry date: $0.76, $0.70. $0.69, $0.68, $0.67 and $0.65. Identify the break-even point.

Q9. Mr. X purchases a call option on 50,000 British pounds (₤) at a strike price of ₤/$2. The premium
is 2% on the current spot rate, which is ₤/$2.10. Calculate the call premium, the profit/loss in each of
the three scenarios for the buyer and identify the breakeven price, when on the maturity date the
spot price of the GBP against the dollar can take any of the three values: (a) ₤/$2.20 (b) ₤/$1.90 (c)
₤/$1.99

Q10.A company buys a put option contract on 500,000 British pounds (₤). The exercise price is
₤/$1.715. The put premium is ₤/$0.06. The spot price on the maturity date can take any of the
following values:
(a) ₤/$1.735 (b) ₤/$1.700 (c) ₤/$1.600 (d) ₤/$1.500
What decision would the buyer take in each case? What is the buyer’s profit or loss in each
case?

Q11.An Indian importer has to pay US $ 1 million three months from now. The current spot rate is
USD/Rs.45.0000. The option premium is 1%. The strike price is USD/Rs45. What kind of option will
he decide upon? What is his profit or loss if the spot rate on the expiry date is likely to be:
(a) USD/Rs 46 (b) USD/Rs 45.5000 (c) USD/Rs44?