1. • Let suppose S=100,K=110, Call Premium= Rs5, Put Premium= Rs3
• First Plan – Buy Stock – 100 Sell Stock -150
Buy Put - 3 Put Lapse
Total - 103 Cash flow-150
• Second Plan Buy Call – 5 Sell Stock -150
Investment (110/1.10) - 100 Call Exercise -40
Investment-100
Total - 105 Cash flow-150
2. • let us now consider a question involving the put-call parity. Suppose a
European call option on a barrel of crude oil with a strike price of $50
and a maturity of one-month, trades for $5. What is the price of the
put premium with identical strike price and time until expiration, if
the one-month risk-free rate is 2% and the spot price of the
underlying asset is $52?
• Solution:
