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      Question

      For a call option with a strike price of ₹80, the

      premium paid is ₹4. If the spot price at expiration is ₹90, what is the profit/loss for the option buyer?
      A Loss of ₹4 Correct Answer Incorrect Answer
      B Profit of ₹6 Correct Answer Incorrect Answer
      C Profit of ₹10 Correct Answer Incorrect Answer
      D Profit of ₹14 Correct Answer Incorrect Answer
      E Loss of ₹6 Correct Answer Incorrect Answer

      Solution

        • Call Option Buyer's Payoff at Expiry:  Max[(Spot Price - Strike Price), 0]
        • Profit/Loss for Buyer:  Payoff - Premium Paid
          Given: Strike = ₹80, Premium = ₹4, Spot at expiry = ₹90.
        1. Payoff = Max[(90 - 80), 0] = Max[10, 0] =  ₹10 .
        2. Profit/Loss = Payoff - Premium = 10 - 4 =  ₹6 Profit .
          The buyer makes a net profit of ₹6 per share after recovering the cost of the option (premium).

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