NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Derivatives
A buyer of a call option on a stock pays a premium of Rs 20 per share with a strike price of Rs 500. At expiry the stock price is Rs 535. What is the net profit per share to the buyer, ignoring costs?
The net profit is Rs 15 per share. The call is worth Rs 35 at expiry (535 minus 500 strike), and after subtracting the Rs 20 premium paid, the buyer is left with Rs 15 per share.
- ARs 35
- BRs 15Correct
- CRs 55
- DRs 20 loss
Explanation
Intrinsic value at expiry = 535 - 500 = Rs 35. Net profit = 35 - 20 premium = Rs 15. Rs 35 ignores the premium paid; Rs 55 adds the premium instead of subtracting it.
Did you get it right without looking?
One question tells you little. A timed set on Derivatives shows your real accuracy, how long you take and where you lose marks.
More Derivatives questions
- A stock trades at Rs 800. A Rs 780 strike call is priced at Rs 35 and a Rs 780 strike put is priced at Rs 10. Which statement is correct abo…
- In a futures contract on a stock index, which feature distinguishes it from a forward contract on the same index?
- A portfolio manager holds a diversified equity portfolio and wishes to protect it from a short-term market fall while retaining the upside. …
- A PMS manager holds a stock portfolio worth Rs 1 crore and buys a protective Nifty put option position. Compared with an unhedged portfolio,…
- A portfolio manager holds a diversified equity portfolio worth Rs 5,00,000 with a beta of 1.0 relative to the Nifty. To reduce market exposu…
- In a futures contract on a stock index, which of the following correctly describes the position of a buyer at expiry if the settlement price…