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

An investor buys a bull call spread: buys a Rs 1,000 strike call at a premium of Rs 50 and sells a Rs 1,100 strike call at a premium of Rs 20, same expiry. What are the maximum profit and maximum loss per share?

Maximum profit is Rs 70 and maximum loss is Rs 30 per share. The net debit of Rs 30 is the most that can be lost, while the profit is capped at the Rs 100 strike gap minus that net premium.

  1. AMaximum profit Rs 70, maximum loss Rs 30Correct
  2. BMaximum profit Rs 100, maximum loss Rs 30
  3. CMaximum profit Rs 70, maximum loss Rs 70
  4. DMaximum profit Rs 30, maximum loss Rs 70

Explanation

Net premium paid = 50 - 20 = Rs 30, which is the maximum loss. Maximum profit = strike difference 100 - net premium 30 = Rs 70. Rs 100 ignores the premium paid.

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