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    Question

    Mr. X has purchased an index option with a strike price

    of Rs 1500. What will be his net gain or loss if the price of an index at maturity is Rs 1550 and the premium paid is Rs 20?
    A Loss of Rs 50 Correct Answer Incorrect Answer
    B Call will expire out of the money Correct Answer Incorrect Answer
    C Gain of Rs 30 Correct Answer Incorrect Answer
    D Gain of Rs 50 Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    As Mr. X is long the option contract. The option will be in the money if the price of an index increases at maturity. The net gain in the transaction will be calculated after deducting the premium paid for the contract. Net gain = price of an index at maturity – strike price – premium paid = 1550 – 1500 – 20 = 30

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