Derivatives Assignment

1. An investor buys 10 contracts of Nifty Futures at 10980 in market lot of 50 futures. On the
settlement date the Nifty is 10870. Find out the profit or loss for the investor. What would be his
position, if the nifty is 11080 on the settlement date. Also, draw a pay off diagram.

2. An investor sells 7 contracts of Nifty Futures at 10570 in market lot of 50 futures. On the
settlement date the Nifty is 10450. Find out the profit or loss for the investor. What would be his
position, if the nifty is 10650 on the settlement date. Also, draw a pay off diagram.

3. Jaipan Ltd. Futures are tradable in multiple of 50 units. Initial Margin is required at 20% for
buyer and 25% for seller. Current level of Jaipan Ltd. Futures is 11020. The settlement prices of
Jaipan Ltd. For next 5 days are 11040, 11070, 10990, 10960 and 11050 respectively. Find out the
Mark to market margin and closing balance of margin on daily basis and also net profit/loss
position at the end of fifth day, if the investor takes a long position.

4. HP Ltd. Futures are tradable in multiple of 50 units. Initial Margin is required at 20% for buyer
and 25% for seller. Current level of HP Ltd. Futures is 12010. The settlement prices of HP Ltd. For
next 5 days are 12040, 12090, 12030, 11990 and 11950 respectively. Find out the Mark to
market margin and closing balance of margin on daily basis and also net profit/loss position at
the end of fifth day, if the investor takes a short position.

5. The current market price of Aspirin Ltd. Share is Rs.345 and is expected to declare dividend of
Rs.20 after 25 days. What should be the price of two months futures, if the risk free rate is 14%?
(Log value of 2.7183 to be taken as 0.4343)

6. Tech Services shares are trading at Rs.4020 and market lot is 50. Three month futures are being
traded at Rs.4070. Given the risk free rate of return at 8%, find out the fair value of TechServices
Futures. Is there any arbitrage opportunity? Find our profit through arbitrage for one lot. (Log
value of 2.7183 to be taken as 0.4343)

7. PlutoLtd. shares are trading at Rs.120 and market lot is 50. Three month futures are being
traded at Rs.128. Given the risk free rate of return at 9%, find out the fair value of Pluto Ltd.
Futures. Is there any arbitrage opportunity? Find our profit through arbitrage for one lot. (Log
value of 2.7183 to be taken as 0.4343)

8. Mr. Kabir writes a European Call option on stock Cello Ltd. Having exercise price of Rs.150 and
receives an option premium of Rs.4. Calculate the intrinsic value and profit and loss of Mr. Kabir
for spot prices at expiry of Rs.146 to Rs.155. Also, draw the pay off diagram.

9. Devawrites a European PUT option on stock Xolo Ltd. Having exercise price of Rs.245 and
receives an option premium of Rs.3. Calculate the intrinsic value and profit and loss of Mr. Deva
for spot prices at expiry of Rs.240 to Rs.250. Also, draw the pay off diagram.
10. Dilip buys an European Call option on stock HM Ltd. by paying an option premium of Rs.3 having
exercise price of Rs.250. Calculate the intrinsic value and profit and loss of Mr. Dilip for spot
prices at expiry of Rs.246 to Rs.255. Also, draw the pay off diagram.

11. Samira buys an European Put option on stock Dell Ltd. by paying an option premium of Rs.2
having exercise price of Rs.1000. Calculate the intrinsic value and profit and loss of Samira for
spot prices at expiry of Rs.996 to Rs.1005. Also, draw the pay off diagram.

12. A stock price is currently Rs.500. It is known that at the end of 2 months it will either Rs.550 or
Rs.475. The risk free rate of interest is 10% p.a. with continuous compounding. What is the value
of 3 month European call option with a strike price of Rs.520 using Binomial Option Pricing
Model? (Log value of 2.7183 to be taken as 0.4343)

13. A stock price is currently Rs.280. It is known that at the end of 3 months it will either Rs.336 or
Rs.238. The risk free rate of interest is 8% p.a. with continuous compounding. What is the value
of 3 month European call option with a strike price of Rs.300 using Binomial Option Pricing
Model? (Log value of 2.7183 to be taken as 0.4343)

14. A stock price is currently at Rs.1800. Over each of the next two 3-months periods it is expected
to go up by 12% or down by 9%. The risk free interest rate is 8% per annum with continuous
compounding. What is the value of a 6 month European call option with a strike price of Rs.1900
using 2 step Binomial Model? (Log value of 2.7183 to be taken as 0.4343)

15. A stock price is currently at Rs.50. Over each of the next two 3-months periods it is expected to
go up by 8% or down by 6%. The risk free interest rate is 6% per annum with continuous
compounding. What is the value of a 6 month European call option with a strike price of Rs.45
using 2 step Binomial Model? (Log value of 2.7183 to be taken as 0.4343)

16. Share of MG Ltd. is currently sold for Rs.90. There is a Call option available at a strike price of
Rs.80 for a period of 6 Months. Find out the value of a Call option given that the rate of
interest is 8% and Standard deviation of the return of the share is 25%. Use Black and Scholes
Model.

17. Share of KP Ltd. is currently sold for Rs.85. There is a Call option available at a strike price of
Rs.75 for a period of 3 Months. Find out the value of a Call option given that the rate of
interest is 6% and Standard deviation of the return of the share is 30%. Use Black and Scholes
Model.
18. What would be a price of a Call, if Value of a Put is Rs.5, Strike price is Rs.100, Current price is
Rs.90, rate of interest is 8% and time period is 2 months.

19. Philips has both European Call and Put options traded on NSE. Both options have same
exercise price of Rs.60 and both expire in one year. Philips does not pay any dividends. The call
and the put are currently selling at Rs.5 and Rs.3 respectively. The risk free rate of interest is
8% p.a. What should be the stock price of Philips trade in order to prevent arbitrage?

20. You believe the price of Genres Ltd. will fall and therefore considering either (a) taking a long
position in a Rs.60 Put, paying a premium of Rs.4, or (b) taking a short position in a Rs.60 Call,
receiving a premium of Rs.6. If the stock price is Rs.45 on the expiration date, which position
makes you better off?