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

A trader buys one lot of a stock call option with strike Rs 500 at a premium of Rs 12. The lot size is 1,000 shares. At expiry the stock settles at Rs 530. What is the net profit to the trader?

The net profit is Rs 18,000. The call is worth Rs 30 per share at expiry (530 minus 500), the buyer paid Rs 12 premium, so profit is Rs 18 per share, which is Rs 18,000 on a lot of 1,000 shares.

  1. ARs 30,000
  2. BRs 18,000Correct
  3. CRs 12,000
  4. DRs 42,000

Explanation

Intrinsic value at expiry = 530 - 500 = Rs 30 per share. Net profit per share = 30 - 12 = Rs 18. For 1,000 shares, profit = Rs 18,000. Rs 30,000 ignores the premium paid, while Rs 42,000 wrongly adds the premium.

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