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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Options

A trader buys a 1,000 strike straddle on a stock by buying a call at Rs 40 and a put at Rs 30 (lot size 200). At expiry the stock is at Rs 1,090. What is the net profit on the lot?

The net profit is Rs 4,000. The call is Rs 90 in the money while the put expires worthless, and the combined premium paid was Rs 70, so profit is Rs 20 per share. With a lot of 200 shares, this equals Rs 4,000.

  1. ARs 4,000Correct
  2. BRs 18,000
  3. CRs 14,000
  4. DRs 2,000

Explanation

Total premium = 40 + 30 = 70. Call intrinsic = 1,090 - 1,000 = 90; put expires worthless. Net = 90 - 70 = 20 per share. For 200 shares = Rs 4,000. Rs 18,000 ignores the premium; Rs 14,000 deducts only the call premium of 40 from 90 and then wrongly adjusts; Rs 2,000 uses a lot of 100.

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