Questions 3

                                                            Derivatives

                                                                                                      Total Marks: 60

Part A: Answer any five questions out of seven. Each question carries 4 marks.

          1)What is the difference between ‘out of the money option’ and ‘in the money option’?

          2)Define  vega and delta in GreekOptions.

          3)Distinguish an option contract from a forward contract.

          4)What is an ‘inverse floater’?

          5)Define ‘arbitrage’.

          6)What are the five factors which impact the value of an option?

          7)Differentiate between a bull and a bear.

Part B: Answer any four questions out of six. Each question carries 8 marks.

          1)If on a stock with a market price of Rs.300, a 30-day call option is purchased with a premium of Rs.30 and a strike price of Rs.300, what is the time value of the option?

          2)’A’ writes a put option with strike price Rs.200 and premium Rs.25. On the expiry date, the asset is quoting at Rs.210. What is the profit or loss for A?

         3)You have purchased a call and a put option , both at a strike price of Rs.150 each. Premiums are Rs.10 and Rs.8 respectively. On the common expiry date, the asset is ruling at Rs.160. What is your net profit or loss?

         4)Anticipating bullish tendency in the market, you entered into a 1-month futures purchase of 100 shares of a particular company at a price of Rs.80 per share. You also purchased 1-month call options for 200 shares of the same company with strike price of Rs.85. After one month the price of share was Rs.82 and you just broke even. So, what was the call option premium per share? Ignore margins for futures.

        5)You bought call options for 100 shares of A Ltd. with strike price of Rs.75 and premium Rs.2 per share. You also wrote put options for 100 shares of the same company for same strike period. On expiry of these contracts, you lost Rs.50. What was the put option premium per share? Market price on the date of expiry was Rs.74.

       6)You bought 100 shares of a company at Rs.150 each when the sensex was 25,000. Beta of the share is 1.5. After one month the sensex was at 22,500. How much did you gain or lose?

Part C: This compulsory question carries 8 marks (4 + 4)

      C1: Is speculation an unmitigated evil? Defend your answer.

      C2: You purchased a call with strike Rs.100 and went short on call with strike Rs.110 for the same period. Premiums were Rs.5 and Rs.2 respectively. The price at expiry of options was Rs.115. What is your net profit or loss?