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

A trader writes one lot of a call option, strike Rs 800, at a premium of Rs 25, lot size 500. At expiry the stock closes at Rs 840. What is the writer's net result?

The writer incurs a loss of Rs 7,500. The call is exercised for Rs 40 intrinsic value per share, but the writer keeps the Rs 25 premium, so the net loss is Rs 15 per share, which is Rs 7,500 on 500 shares.

  1. AProfit of Rs 7,500
  2. BLoss of Rs 7,500Correct
  3. CLoss of Rs 20,000
  4. DLoss of Rs 12,500

Explanation

Buyer's payoff = 840 - 800 = Rs 40 per share. The writer pays 40 and keeps premium 25, so net = -15 per share. Times 500 = loss of Rs 7,500. Rs 20,000 ignores the premium received.

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