CMA Final · Strategic Financial Management · Options
A trader writes a call option on Yamuna Ltd. shares with strike ₹600 at a premium of ₹25. At expiry the share price is ₹640. What is the writer's net result per share?
The writer incurs a net loss of ₹15 per share. The call is exercised because the price of ₹640 exceeds the ₹600 strike, costing the writer ₹40, which is only partly offset by the ₹25 premium received.
- ALoss of ₹15Correct
- BLoss of ₹40
- CProfit of ₹25
- DLoss of ₹65
Explanation
The holder exercises and the writer pays 640 - 600 = ₹40. Writer keeps premium ₹25. Net = 25 - 40 = -₹15, a loss. Loss of ₹40 ignores the premium; ₹65 adds the premium wrongly; profit ₹25 assumes no exercise.
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