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

A trader buys one lot of a Nifty call option with a strike of 22,000 at a premium of Rs 120. The lot size is 50. At expiry the Nifty settles at 22,300. What is the net profit of the trader on the lot, ignoring transaction costs?

The call finishes with an intrinsic value of 300 points. After deducting the premium of 120, the net gain is 180 points per unit. Multiplied by the lot size of 50, the profit is Rs 9,000.

  1. ARs 9,000
  2. BRs 15,000
  3. CRs 6,000Correct
  4. DRs 21,000

Explanation

Intrinsic value at expiry = 22,300 - 22,000 = 300. Net gain per unit = 300 - 120 = 180. For 50 units, profit = 180 x 50 = Rs 9,000. Rs 15,000 is the gross payoff of 300 x 50 without deducting premium... so it is wrong; Rs 6,000 is the premium paid and also wrong.

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