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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 150. The lot size is 50. At expiry Nifty settles at 22,300. What is the net profit of the trader?

The profit is Rs 7,500. The call is worth 300 points at expiry (22,300 minus 22,000), the premium paid was 150 points, so the net gain is 150 points per unit, and multiplying by the lot size of 50 gives Rs 7,500.

  1. ARs 7,500Correct
  2. BRs 15,000
  3. CRs 22,500
  4. DRs 11,250

Explanation

Intrinsic value at expiry is 22,300 - 22,000 = 300 points. Net gain per unit is 300 - 150 = 150 points. For a lot of 50 the profit is 150 x 50 = Rs 7,500. Rs 15,000 ignores the premium paid, and Rs 22,500 is 450 x 50, which wrongly adds the premium.

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