Financial DerivativesTU Board 2023
Suppose you own a put option that permits you to sell 100 shares of the stock of XYZ Company for Rs 300 per share any time in the next six months. Current price of stock is Rs 300 per share. The put…
5Suppose you own a put option that permits you to sell 100 shares of the stock of XYZ Company for Rs 300 per share any time in the next six months. Current price of stock is Rs 300 per share. The put premium is Re 4 per share. Should you exercise the put option and sell the stock if its price decreases to Rs 260? What should be your gain (loss) if you exercise the put option and then immediately purchased the stock? Should you exercise the put option and sell the stock if its price increases to Rs 360? Why?
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Value of a financial derivative depends upon value of underlying asset.TU Board 20241In the money put option has positive intrinsic value.TU Board 20241There is direct / positive relationship between value of call option with time to expiration.TU Board 20241When pricing a put with the binomial model, the up and down probabilities are reversed.TU Board 20241Both put option buyer and seller have the potential for unlimited losses.TU Board 20241If the initial margin is Rs 5,000, the maintenance margin is Rs 3,500 and your margin balance is Rs 4,000, you will receive margin call of Rs 500.TU Board 20241