NISM Certifications · NISM-Series-VIII: Equity Derivatives · Strategies using Equity Futures and Equity Options
A trader buys a bull call spread: buys a Rs 100 strike call at premium Rs 8 and sells a Rs 110 strike call at premium Rs 3. What is the maximum loss per share?
The maximum loss is Rs 5 per share, equal to the net premium paid: Rs 8 paid for the lower-strike call less Rs 3 received for the higher-strike call. This is lost if the price ends at or below Rs 100.
- ARs 3
- BRs 5Correct
- CRs 8
- DRs 10
Explanation
Net premium paid = 8 - 3 = Rs 5, which is the maximum loss if the price stays at or below 100. Maximum profit would be 10 - 5 = Rs 5 as well. Rs 8 ignores the premium received.
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