Suppose a trader writes a put option on the Reliance stock with a strike price of INR 800 and receives a premium of INR 30. What is his profit or loss at expiry when the stock is trading at INR 840?
Ans is 30 profit
Suppose a trader writes a put option on the Reliance stock with a strike price of INR 800 and receives a premium of INR 30. What is his profit or loss at expiry when the stock is trading at INR 840?
Ans is 30 profit
A trader writes put option of INR 800, and received premium of Rs. 30/-.
Imagine a buyer who has bought it. The buyer paid Rs. 30/-
Scenario 1 :
Suppose - If expires at 750, then the premium will be (Spot Price - Expiry Price), so Rs. 50/-
The buyer receives Rs. 50/- (i.e. Rs. 20/- profit as he already paid premium of Rs. 30/-)
The seller will need to pay Rs. 50/- (i.e. Rs. 20/- loss as he has received Rs. 30/-, and end up paying Rs. 50/- back)
Scenario 2 :
Suppose - If expires at 840, then the option expired WORTHLESS (as Expiry Price > Spot Price), so Rs. 0/-
The buyer loses his whole premium of Rs. 30/-
The seller keeps the whole premium of Rs. 30/- (which is received already). So that's the profit of Rs. 30/-
cheers,
Mangesh
Well explained ???