Question

you have purchased a security of for rs 1025. because of the fluctuations in the market , you have purchased a put option from a hedge fund with strike price of $1100. you have paid an upfront premium of rs 25. at the time of expiry of option contract, the market rises to rs 1150. what course of action will you take and why? what would have been your decision if you had purchased a call instead of a put option,at the same rate.

Answer 1

I. I will be trying to book out on my profits on 1150 for which the security which I have held for 1025.

I will also not exercise the put option because put option cannot be exercised as the current market price of the share is not below the strike price of the share. So, I will be letting of go the premium and my premium will be net loss of $25.

2. if I would have purchased the call option then I would have exercised my call option and I would have made a profit of (1150-1100-25)=$ 25 on call option as well along with the profit which has been made by holding on the security.