NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Derivatives
A portfolio manager holds 1,000 shares of a company at Rs 800 and buys one put with strike Rs 760 for a premium of Rs 15 per share, covering all 1,000 shares (protective put). If the share price at expiry falls to Rs 700, what is the net value of the position per share relative to the original purchase price, in terms of loss?
The loss is Rs 55 per share. The shares fall Rs 100, the put gains Rs 60 (760 minus 700), leaving Rs 40 loss, and the Rs 15 premium paid raises the total loss to Rs 55 per share.
- ARs 100 loss
- BRs 55 lossCorrect
- CRs 40 loss
- DRs 85 loss
Explanation
Share loses 800 - 700 = Rs 100. Put pays 760 - 700 = Rs 60. Net before premium is a loss of Rs 40; adding the Rs 15 premium gives a loss of Rs 55 per share. Rs 40 ignores the premium, Rs 100 ignores the put.
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