Call and Put Options Examples

Following are the main examples of call and put options. I recommend, you should read these examples 2 or 3 times. Write it with your own example. Teach it to your friend or students. Only after this, you will understand these examples. 


 1. Call Option Example


ABC Company's current market value is $ 100 per share. Mr. Mohan has 1000 shares. He want to sell immediately through call option contract. Mr. Sohan expects that price of same shares will increase upto $ 110 per share. He is ready to enter in this call option contract. For this, he has to pay $ 10 per share. If it will not become $ 110 per share, he will have the option right. If shares value will not reach upto $ 110 per shares, he can leave this contract. Now, this time paid only $ 10 per share. For this, he paid $ 10 X 1000 = $ 10,000

Now, there are two options for buyer.

A) Before expiry of contact, market price does not rise. Buyer does not buy 1000 shares at $ 110. He lost only $ 10,000 and save further losing of $ 10,000 due to exercising this contract.

B) Before expiry of contract, market price reached at $ 130 per share. Buyer exercise this contract and bought all by paying just $ 110 per share. For this, he paid only $ 1,10,000 and

Total gain = $ 1,30,000 - 1,10,000 = $ 30,000

Net Gain = $ 30,000 - $ 10,000 = $ 20,000

2. Put Option Example  :


ABC Company's current market value is $ 100 per share. Mr. Mohan has 1000 shares. He want to sell immediately through put option contract. Mr. Mohan expects that prices of this shares will fastly fall. So, he is ready to fix strike low price. Mr. Sohan is interested to buy at low price under put contract. Strike price is $ 90 which is less than current price. Now, strike price is $ 10 less. So, seller will pay $ 10 per share to buyer.  So, seller paid $ 10 X 1000 = $ 10,000 at this time. Now, seller has right to leave the contract, if prices will not fall. Buyer has obligation to buy the shares at strike price if prices will fall upto the expiry of contract or maturity. 

 For this, he has to pay $ 10 per share. If it will not become $ 90 per share, he will have the option right. If shares value will not reach upto $ 110 per shares, he can leave this contract. Now, this time paid only $ 10 per share. For this, he paid $ 10 X 1000 = $ 10,000

Now, there are two options for Seller.

A) Before expiry of contact, market price does not fall. Seller does not sell 1000 shares at $ 90. He lost only $ 10,000 and save further losing of $ 10,000 due to exercising this contract.

B) Before expiry of contract, market price reached at $ 70 per share. Seller exercise this contract. He sold $ 70 price per share at $ 90 per share under put option.


Total gain = $ 90,000 - 70,000 = $ 20,000

Net Gain = $ 20,000 - $ 10,000 = $ 10,000
.
Name

"accounting software" "cost accountant" "financial management" account accountant accounting accounting education accounting format accounting glossary accounting questions accounting software ad advertising american express answer auditing b.com balance sheet bank bba BCA bonus business Business Dictionary CA CA- IPCC CA-CPT CA-Final capital career Category cfa children coaching company conferences Consignment Accounting contact corporate accounting cost cost accounting CPT credit card debit card debt degree depreciation dictionaries donation earning ecommerce economics education Events finance Finance Dictionary financial financial accounting financial mathematics Financial Ratios forex management free funds google google apps google talk guest writer Help Center ICWAI IFRS inspiration insurance terms interest journal entries lectures List m.com management accounting mathematics MBA MCA media mutual funds ngo notes overhead pdf pnb presentation Prof. Vinod profiles quickbooks quiz ratio rbi reporting Service Tax shares solution students tally tax teacher teaching Test Testimonials tips treasury management tutorial UGC NET Commerce video webinars Wikipedia working capital
false
ltr
item
Education of Accounting : Call and Put Options Examples
Call and Put Options Examples
Education of Accounting
http://education.svtuition.org/2013/11/call-and-put-pptions-examples.html
http://education.svtuition.org/
http://education.svtuition.org/
http://education.svtuition.org/2013/11/call-and-put-pptions-examples.html
true
8374141921294355176
UTF-8
Not found any posts VIEW ALL Readmore Reply Cancel reply Delete By Home PAGES POSTS View All RECOMMENDED FOR YOU LABEL ARCHIVE SEARCH ALL POSTS Not found any post match with your request Back Home Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sun Mon Tue Wed Thu Fri Sat January February March April May June July August September October November December Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec just now 1 minute ago $$1$$ minutes ago 1 hour ago $$1$$ hours ago Yesterday $$1$$ days ago $$1$$ weeks ago more than 5 weeks ago Followers Follow THIS CONTENT IS PREMIUM Please share to unlock