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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Strategies using Equity Futures and Equity Options

A trader writes (sells) a put option on a stock with strike Rs 300 and receives a premium of Rs 10. At expiry the stock closes at Rs 285. What is the trader's net profit or loss per share?

The trader makes a net loss of Rs 5 per share. The put finishes Rs 15 in the money, which the writer must pay, while the premium received of Rs 10 offsets part of it, leaving a loss of Rs 5.

  1. ALoss of Rs 5Correct
  2. BLoss of Rs 15
  3. CProfit of Rs 10
  4. DLoss of Rs 25

Explanation

The put buyer exercises, so the writer pays intrinsic value 300 - 285 = Rs 15. Net = premium received 10 - 15 = loss of Rs 5. Ignoring the premium gives Rs 15 loss, which is wrong.

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