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Answer Posted / giri
A call option gives the right to the buyer of an option to
buy some assets,shares,etc. at a strike price on a fixed
date. The buyer of the option pays some premium to the
seller/writer of the option. Options are exchange traded
contract, so there is no default risk.
The buyer makes profit from the option when the price of
the underlying assets increase in the market and makes
losses which is fixed that is the premium amount what he
has paid at the time of the contract.
How he makes profit?
Suppose the underlying asset is the share of infosys and
the current market price of the share is Rs. 1000 and You
have entered into the contract with another person that you
will buy a call option with a strike price of 1050 and you
will pay the premium of 20 after one month.
After one month if the price of the share is 1100, then you
will make a profit because you will buy the share from that
person at Rs.1050 and you will pay the premium of Rs.20 and
sell those share at Rs.1100 in the market.
So, Total profit for you will be 1100-1050-20=30
| Is This Answer Correct ? | 6 Yes | 1 No |
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