NISM Certifications · NISM-Series-VIII: Equity Derivatives · Sales Practices and Investors Protection Services
A client sold a call option on 1 lot of 100 shares with strike Rs 2,000 and received a premium of Rs 60 per share. At expiry the stock settles at Rs 2,090. The broker had warned the client of unlimited risk. What is the client's net profit or loss on the position?
The client suffers a net loss of Rs 3,000. The call finishes with 90 points of intrinsic value, which the seller pays, while the premium received was 60 points. The net loss is 30 points per share, so 30 x 100 shares equals Rs 3,000.
- ALoss of Rs 3,000Correct
- BLoss of Rs 9,000
- CProfit of Rs 6,000
- DLoss of Rs 15,000
Explanation
The buyer exercises as 2,090 exceeds 2,000, intrinsic value = 90. Seller's net per share = 60 - 90 = -30. For 100 shares the loss is Rs 3,000. Loss of Rs 9,000 ignores the premium received.
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