Mr. Shyam an investor is not sure about the expected price movement of the stock of Delta Corporation's share. His friend Adi advised him to go for…

Total premium paid on purchasing a call and put option = (30per share × 100) + (5per share × 100) = 3,000 +500 = 3,500 (i) Net Pay-off if there is no change in price In this case, Mr. Shyam exercises neither the Call option nor the Put option as both will result in a loss for him. Ending value = -3,500 + Zero gain = -3,500 i.e. Net loss is 3,500 (ii) Net Pay-off if price falls at 350 Since the price of the stock is below the exercise price of the Call, it will not be exercised. Only Put is valuable hence it is exercised. Ending value = -3,500 + ₹ [(450 – 350) × 100] = -3,500 +10,000 = 6,500 ∴ Net gain is 6,500 (iii) Net Pay-off if price rises to 600 In this situation, the put is worthless since the price of the stock exceeds the Put's exercise price. Only Call is valuable and hence it is exercised. Ending value = -3,500 + ₹ [(600 – 550) × 100] = -3,500 +5,000 = 1,500 ∴ Net Gain is 1,500