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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 on a stock: buys a Rs 1,000 call at premium Rs 45 and sells a Rs 1,050 call at premium Rs 20. What is the maximum profit per share?

The maximum profit is Rs 25 per share. The spread between strikes is Rs 50, and the net premium paid is Rs 25 (45 minus 20), so the maximum gain is 50 minus 25, reached when the stock closes at or above Rs 1,050.

  1. ARs 25
  2. BRs 30Correct
  3. CRs 50
  4. DRs 75

Explanation

Net premium paid = 45 - 20 = Rs 25, which is the maximum loss. Maximum profit = difference in strikes - net premium = 50 - 25 = Rs 25... check: 50 - 25 = 25. So the correct figure is Rs 25.

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