CMA Final · Strategic Financial Management · Options
A trader buys a European put option on shares of Reliance Industries with a strike price of ₹2,500 for a premium of ₹60. At expiry the share price is ₹2,380. What is the trader's net profit per share?
The net profit is ₹60 per share. The put is in the money by ₹120 (2,500 minus 2,380), and after deducting the ₹60 premium paid, the trader keeps ₹60. Ignoring the premium would wrongly give ₹120.
- A₹60Correct
- B₹120
- C₹180
- D₹0
Explanation
Put payoff = 2,500 - 2,380 = ₹120. Net profit = payoff minus premium paid = 120 - 60 = ₹60. Option ₹120 ignores the premium; ₹180 wrongly adds the premium.
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