# CALL OPTIONS

Discuss CALL OPTIONS within the Financial Management ( FM ) forums, part of the Resolve Your Query - Get Help and discuss Projects category; Consider a call option on a certain share; say ABC Suppose the contract is made between two investors X and ...

 CALL OPTIONS
Sunanda K. Chavan

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CALL OPTIONS - October 8th, 2010

Consider a call option on a certain share; say ABC Suppose the contract is made between two investors X and Y, who take, respectively, the short and long positions. The other details are given below:

Exercise price = Rs 120

Expiration month = March, 2001

Size of contract = 100 shares

Date of entering into contract =January 5, 2001

Price of share on the date of contract = Rs 124.50

Price of option on the date of contract = Rs 10

At the time of entering in to the contract, Investor X writes a contract and receives Rs. 1000 (= 10 x 100) Investor Y takes a long position and pays Rs 1000 for it.

On the date of maturity, the profit or loss to each investor would depend upon the price of the share ABC prevailing on that day. The buyer would obviously not call upon the call writer to sell shares if the price happens to be lower than Rs 120 per share. Only when the price exceeds Rs 120 per share will a call be made.

Having paid Rs 10 per share for buying an option, the buyer can make a profit only in case the share price would be at a point higher than Rs 120 + Rs 10 = Rs 130. At a price equal to Rs 130 a break-even point is reached.

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 Re: CALL OPTIONS
Rose Marry

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Re: CALL OPTIONS - April 15th, 2016

Quote:
 Originally Posted by sunandaC Consider a call option on a certain share; say ABC Suppose the contract is made between two investors X and Y, who take, respectively, the short and long positions. The other details are given below: Exercise price = Rs 120 Expiration month = March, 2001 Size of contract = 100 shares Date of entering into contract =January 5, 2001 Price of share on the date of contract = Rs 124.50 Price of option on the date of contract = Rs 10 At the time of entering in to the contract, Investor X writes a contract and receives Rs. 1000 (= 10 x 100) Investor Y takes a long position and pays Rs 1000 for it. On the date of maturity, the profit or loss to each investor would depend upon the price of the share ABC prevailing on that day. The buyer would obviously not call upon the call writer to sell shares if the price happens to be lower than Rs 120 per share. Only when the price exceeds Rs 120 per share will a call be made. Having paid Rs 10 per share for buying an option, the buyer can make a profit only in case the share price would be at a point higher than Rs 120 + Rs 10 = Rs 130. At a price equal to Rs 130 a break-even point is reached.
hey dear,

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