The Viswan Family Office (VFO) owns non-dividend-paying shares of Biomian Limited that are currently priced (S0) at INR 295 per share. VFO’s CIO is considering an offer to sell shares at a forward price (F0(T)) of INR 300.84 per share in six months based on a risk-free rate of 4%. You have been asked to advise on the purchase of a put option or the sale of a call option with an exercise price (X) equal to the forward price (F0(T)) as alternatives to a forward share sale.
Question
Q. Which of the following statements correctly describes the put option and call option premiums given the relationship between Biomian’s current price of INR 295 and the exercise price equal to the forward price of INR 300.84?
- A.The call option’s premium consists solely of time value, and the put option’s premium consists solely of exercise value.
- B.The call option’s premium consists solely of exercise value, and the put option’s premium consists solely of time value.
- C.The call option’s premium consists solely of time value, and the put option’s premium consists solely of time value.
Solution
Please provide solution
Ans-C hai.
put and call ka value value aaj kya h??
C0=S-PV of X = 295- PV of 300.84= 0
P0= PV of X – S= PV of 300.84-295=0
jab dono ka IV0=0,then option value=time value
sirf excercise value to expiry k time hota h and expiry k din time value=0
isiliye option A wrong hai warna usme agar put premium consist of exercise+time value diya rehta to wo correct answer hota. Option B to total wrong hai bcz OTM hai call , to exercise value=0
yehi dekh k man m thought aya ki iska value aaj kya h wo puch rha h sayad tvi PV wala concept try kiye or dekhe dono ka PV se excercise value 0 aa rha hai means dono ka option premium = time value
I hope logic samjha sake hum!!