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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Accounting and Taxation

A trader sold 1 lot (100 units) of Nifty-type index options on a call at premium Rs 50 and later bought it back at Rs 30 in the same year. Separately he bought a put lot (100 units) at Rs 20 and sold it at Rs 12. What is his turnover for these option trades, using the method where option turnover is the sum of favourable and unfavourable differences plus premium received on sale of options?

Option turnover equals the absolute total of profits and losses plus premium received on options sold. The call gives a Rs 2,000 gain, the put a Rs 800 loss, and the call was written for Rs 5,000 premium, so turnover is Rs 7,800.

  1. ARs 2,800
  2. BRs 7,800Correct
  3. CRs 5,000
  4. DRs 4,000

Explanation

Call: favourable difference (50-30) x 100 = Rs 2,000. Put: unfavourable difference (20-12) x 100 = Rs 800 (absolute). Premium received on sale of options: call sold at Rs 50 x 100 = Rs 5,000 and put sold at Rs 12 x 100 = Rs 1,200, giving Rs 6,200. Total = 2,000+800+... wait the standard rule is differences plus sale premium: 2,000+800+5,000 = 7,800 for the call sale premium only, but the put sale premium Rs 1,200 is the closing leg of a bought option and is not counted as premium on a sold option.

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