Derivative Contract- Numerical Questions

1. An investor buys a NIFTY futures contract for ₹2,80,000 (lot size 200
futures). On the settlement date, the Nifty closes at 1,378. Find out his
profit or loss if he pays ₹1,000 as brokerage. What would be the amount
of profit or loss if he sold the futures contract?

Ans: Loss if buy = ₹5,400; Gain if sale = ₹3,400

2. Nifty Index is currently quoting at 1329.78. Each lot is 250. Z purchases
a March contract at 1364. He has been asked to pay 10% initial margin.
What is the amount of initial margin? Nifty futures rise to 1370.What is
the percentage gain?
Ans: Margin = 34100; % Gain = 4.4%
3. The 3-month futures contract on NIFTY maturing in April 2009 is
currently trading at 2610. The current value of NIFTY is 2590. The one-
year risk free rate is 8% and the year -end dividend yield on the market
index is 4%. Find the theoretical futures price and comment on
arbitrage opportunity.
Ans: ₹2616.03
4. Tam buys 10000 shares of X Ltd. at ₹22 and obtains a hedge of shorting
400 Nifty at ₹1100 each. He closes out his position at the closing price of
the next day at which point the share of X Ltd. has dropped 2% and the
nifty future has dropped 1.5%. What is the overall profit/loss of this set of
transaction?

Ans: Net Gain = ₹ 2,200

5. The equity share of VCC Ltd. is quoted at ₹ 210. A 3-month call option is
available at a premium of ₹6 per share and a 3-month put option is available at
a premium of ₹ 5 per share. Ascertain the net payoffs to the option holder of a
call option and a holder of put option.
(i) the strike price in both cases is ₹ 220; and
(ii) the share price on the exercise day is ₹ 200, 210, 220, 230, 240.
Also indicate the price range at which the call and the put options may be
gainfully exercised.
Ans: (i) Net payoff for call option is ₹ -6, -6, -6, 4, 14 for exercise
price ₹ 200, 210, 220, 230, 240 respectively,
 (ii) Net payoff for put option is ₹ 15, 5, -5, -5, -5 for exercise
price ₹200, 210, 220, 230, 240 respectively.
6. Dravid Investments Ltd deals in equity derivatives. Their Current Portfolio
comprises of the following instruments:
Infosys ₹5600 Call Expiry June 2004, 2,000 Units bought at ₹197 each (cost)
Infosys ₹ 5700 Call Expiry June 2004, 3,600 Units bought at ₹131 each (cost)
Infosys ₹ 5400 Put Expiry June 2004, 4,000 Units bought at ₹181 each (cost)
What will the profit or loss to Dravid Investments Ltd in the following
situations?
(i) Infosys closes on the expiry day at ₹6,041
(ii) Infosys closes on the expiry day at ₹ 5,812
(iii) Infosys closes on the expiry day at ₹ 5,085.
Ans: (i) ₹5,20,000; (ii) (-) ₹7,62,400 (iii) ₹ (-) 3,29,600
7. Calculate Profits and losses from the following transactions:
(i) Mr. X writes a call option to Sale share at an exercise price of ₹60 for a
premium of ₹12 per share. The share price rises to₹62 by the time the option
expires.
(ii) Mr. Y buys a put option at an exercise price of ₹80 for a premium of ₹8.50
per share. The share price falls to ₹60 by the time the option expires.
(iii) Mr Z writes a put option at an exercise price of ₹80 for a premium of ₹11
per share. The price of the share rises to ₹96 by the time the option expires.
(iv) Mr. XY writes a put option with an exercise price of ₹70 for a premium of
₹8 per share. The price falls to ₹48 by the time the option expires.
Ans: (i) ₹10; (ii) ₹11.50 (iii) ₹11; (iv) (-) ₹14.00
8. Mr. X established the following spread on the Delta Corporation’s stock:
(i) Purchased one 3-month call option with a premium of ₹30 and an exercise
price of ₹550.
(ii) Purchased one 3-month put option with a premium of ₹5 and an exercise
price of ₹450.
Delta Corporation’s stock is currently selling at ₹500. Determine profit or loss,
if the price of Delta Corporation’s:
(i) remains at ₹500 after 3 months.
(ii) falls at ₹350 after 3 months.
(iii) rises to ₹600.
Assume the size option is 100 shares of Delta Corporation.
Ans: (i) Net loss = ₹3,500; (ii) net Gain = ₹6,500, (iii) Net Gain = ₹1,500