NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Options
A trader writes (sells) a call option on a stock with strike Rs 800 and receives a premium of Rs 25. At expiry the stock closes at Rs 840. What is the writer's net result per share?
The call writer must pay the buyer 840 minus 800, which is Rs 40 per share. Against this the writer received a premium of Rs 25. The net result is a loss of Rs 15 per share.
- AProfit of Rs 15
- BLoss of Rs 40
- CLoss of Rs 15Correct
- DProfit of Rs 25
Explanation
The buyer exercises as spot 840 exceeds strike 800, so the writer pays 40. Net = premium received 25 - payout 40 = -15, a loss of Rs 15. A loss of Rs 40 ignores the premium received.
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