Answer to Question #317742 in Management for Vishakha Dhoka

Question

What is an Options contract? Explain “Right but not obligation”. You have bought a Call Option on a stock of HLU Ltd. with expiration date of 31 March 22. The Strike price is Rs. 200 and the Option premium you paid for the option is Rs. 20. What would be the impact of the following spot prices on 31 March 22 on your decision to exercise the option? As a holder of the option, what would be the profit or loss amount in each of these spot prices? Also compute the profit or loss to the writer of the option in each of these scenarios. Assume that the option writer would need to buy the stock at the spot price on the expiration date in case you decide to exercise the option. Spot price on 31 March 22: Rs. 100, Rs. 150, Rs. 200, Rs. 250, Rs. 300 and Rs. 350

Answer 1

Alternatives contracts are usually related to a situation where in a supplier may also opt to buy the stock at a specific price for a hard and fast length. While the seller has accepted this positive quantity of time, he has denied his possibility to revoke the offer. Proper but not an obligation refers to a state of stability.