CA Final · Advanced Financial Management · Derivatives Analysis and Valuation
A trader writes a call option on a share with strike Rs 800 and receives a premium of Rs 25. At expiry the share price is Rs 840. What is the writer's result per share?
The writer incurs a loss of Rs 15 per share. The call is exercised, costing the writer Rs 40 (price minus strike), and the premium income of Rs 25 only partly offsets that, leaving a net loss of Rs 15.
- AProfit Rs 25
- BLoss Rs 15Correct
- CLoss Rs 40
- DProfit Rs 15
Explanation
The buyer exercises, so the writer pays 840 - 800 = Rs 40. The premium received of Rs 25 offsets part of it: 25 - 40 = loss of Rs 15. Loss Rs 40 ignores the premium received.
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