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Payoff Profile of a Call Seller: The maximum gain for a seller of the call option is premium Payoff Profile of a Put Buyer: The maximum loss for a buyer of the put option is the premium paid by him, while maximum gains are unlimited. Payoff Profile of a Put Seller: The maximum gain for a seller of the put option is premium. Payoff Profile for Options – Thumb Rule Call | Buyer | * Profits unlimited * Losses limited to the extend premium paid | | Seller | * Profits limited to the extend premium received * Losses unlimited | Put | Buyer | * Profits unlimited * Losses limited to the extend premium paid | | Seller | * Profits limited to the extend premium received * Losses unlimited | PCR – Put Call Ratio Put Call Ratio means, the Volume of Put Options to the Volume of Call of Options. As you may know, Put option indicates, the Price of the Stock is going to fall and a Call Option buyer anticipates the Stock is going to rise. When calls are more than Puts, means the anticipation of market moving up is more. (Bullish Sentiment) When puts are more than calls, means it is a sentiment of Bearish Market. At the end of the day, when Put to call ratio is taken; the overall market sentiment can be captured. * When Put - call ratio is Low, That means, Calls are more than Puts - BullIish Market Sentiment. * When Put - Call Ratio is high, that means, puts are more than calls, Bearish Market Sentiment. PCR – Thumb Rule PCR Higher | Puts Are More Than Calls | Bearish | PCR Lower | Calls Are More Than Puts | Bullish |

Open Interest Open Interest is the number of Outstanding Shares (yet to be settled), in the Futures and Options trading. If you buy 2 futures from me, the Open Interest is 2. If I in turn buy 4 futures from C, the open interest is 6. These are un-setlled contracts. Thus to analyse Open Interest, it needs to be analyzed along with Price of the Shares. These are the 4 common analysis parameters: Open Interest Analysis – Thumb Rule Contract Increases | Price Increases | Bullish | Contract Increases | Price Decreases | Bearish | Contract Decreases | Price Increases | Bullish | Contract Decreases | Price Decreases | Bearish | Thus PCR needs to be studied in co-relation with Open Interest for a complete analysis. 3.4 Numericals Q.1. Chetan is bullish about the index. Spot nifty stands at 2200. He decides to buy one 3 month nifty call option contract with a strike of 2260 @ Rs. 60 a call. Three months later the index closes at 2240. His payoff on the position is (Lot Size = 100) a. -7000 b. -4000 c. -12000 d. -6000 Solution: The call expires out of the money, so he simply loses the call premium he paid, i.e 60 * 100 = Rs.6, 000. The correct answer is option (d). Q.2. On 1st April, Ms. Sapna has bought 400 calls (1 Lot) on Cipla at a strike price of Rs 200/- for a premium of Rs 20 per call. On expiry Cipla closes at Rs. 240/-. What is net payoff in terms of profit / loss? a. Profit of Rs. 16000 b. Profit of Rs. 8000 c. Loss of Rs. 16000 d. Loss of Rs. 8000

Solution: On the 400 calls sold by her, she receives a premium of Rs.8000. However on the calls assigned to her, she loses Rs. 16,000(400 * (240-200)). Her pay-in obligation is Rs.8000. The correct answer is option (b). Q.3. Ms. Manisha has sold 800 calls on ‘Dr. Reddys Lab’ at a strike price of Rs. 882 at a premium of Rs 25 per call on Jan 1st. The closing price of equity shares of ‘Dr. Reddys Lab’ was Rs. 884 on that day. If the call option is assigned to her on that day, what is her net obligation on Jan 1st? a. Pay out of Rs. 18300 b. Pay in of Rs. 18300 c. Pay in of Rs 13800 d. Pay out of Rs. 18400 Solution: She will receive the premium amount of Rs. 20,000/- (i.e.800*25). Since she is an option writer, her max. profit is Rs. 20,000/- wherein losses can be unlimited. Now if the price goes above 882 she stands to loose and if it remains @ 882 or goes below 882 she stands to gain Rs. 20,000/-. As prices move up from 882 to 884 i.e. diff of Rs.2/- she stands to loose Rs. 1600/- (800*2). Her profit amount has gone down by 1600, thus she will receive the payout from the exchange of Rs. 18400/- instead of Rs. 20,000/-. The correct answer is option (d). Q.4. Ms. Shweta has sold 600 calls on DLF at a strike price of Rs. 1403 for a premium of Rs. 30 per call on March 1st. The closing price of equity shares of DLF is Rs. 1453 on that day. If the call option is assigned against her on that day, what is her net obligation on March 1st?