NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Options
A trader buys one lot of 500 shares of a stock's call option with strike Rs 800 at a premium of Rs 22 per share. At expiry the stock settles at Rs 840. Ignoring costs, what is the net profit on the position?
The net profit is Rs 9,000. The call is worth Rs 40 per share at expiry (840 minus 800), and after deducting the Rs 22 premium the gain is Rs 18 per share. Multiplied by 500 shares, this gives Rs 9,000.
- ARs 9,000Correct
- BRs 20,000
- CRs 11,000
- DRs 9,000 loss
Explanation
Intrinsic value at expiry = 840 - 800 = Rs 40. Net profit per share = 40 - 22 = Rs 18. For 500 shares, 18 x 500 = Rs 9,000. Rs 20,000 ignores the premium paid, and Rs 11,000 equals the premium paid (22 x 500).
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