Mr. A established the following strategy on the stock of D Ltd. which is currently trading at 1000 per share: (1) Purchased one 3-month call option…

Total premium paid on purchasing a Call and Put option = (60per share × 100) + (10per share × 100). = 6,000 +1000 = 7,000 (i) In this case, Mr. A exercises neither the Call option nor the Put option as both will result in a loss for him. Accordingly, the Ending value = -7,000 + zero gain = -7,000 i.e Net loss = 7000 (ii) Since the price of the stock is below the exercise price of the Call, the Call will not be exercised. Only Put is valuable and hence is exercised. Accordingly, Total Premium paid = 7,000 Ending value = − ₹ 7000 + ₹ [(900 – 700) × 100] = − ₹ 7000 +20,000 = 13,000 ... Net gain = 13,000 (iii) Since the price of stock rises above the exercise price of Put, the Put will not be exercised. Only Call is valuable and hence is exercised. Accordingly, Total Premium paid = 7,000 Ending value = −₹ 7000 + ₹ [(1300-1100) × 100] = −₹ 7000 +20000 Net gain = 13,000