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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Strategies using Equity Futures and Equity Options

A stock trades at Rs 300 and a trader owns 1,000 shares. The trader sells one lot (1,000 shares) of a call option with strike Rs 320 for a premium of Rs 10. What is the trader's total profit per share if the stock is at Rs 340 at expiry, relative to the Rs 300 purchase price?

The profit is Rs 30 per share. The shares gain Rs 40, the short call loses Rs 20 of intrinsic value, and the Rs 10 premium received reduces that loss to Rs 10. This equals the capped maximum profit of a covered call.

  1. ARs 30Correct
  2. BRs 50
  3. CRs 20
  4. DRs 10

Explanation

This is a covered call. Share gain = 340 - 300 = 40. The short call loses 340 - 320 = 20, offset by premium 10, giving net -10. Total = 40 - 10 = Rs 30. Maximum profit is (320-300)+10 = Rs 30, so it is capped.

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