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

A trader writes one lot (lot size 100) of a stock put option with strike Rs 500 and receives a premium of Rs 12. At expiry the stock closes at Rs 470. What is the trader's net result?

The trader makes a net loss of Rs 1,800. The put finishes Rs 30 in the money, so the writer pays Rs 30 per share, offset by the Rs 12 premium received, leaving a Rs 18 loss per share. On 100 shares this is Rs 1,800.

  1. ALoss of Rs 1,800Correct
  2. BLoss of Rs 3,000
  3. CProfit of Rs 1,200
  4. DLoss of Rs 4,200

Explanation

The put writer pays the intrinsic value 500 - 470 = 30 per share. Net = 12 received - 30 paid = -18 per share. For 100 shares the loss is Rs 1,800. Rs 3,000 ignores the premium received; Rs 4,200 adds the premium instead of subtracting it.

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