NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Derivatives
An investor buys a call option on a stock with a strike price of ₹300 and pays a premium of ₹12 per share. At expiry the stock is at ₹325. What is the net profit per share?
The net profit is ₹13 per share. The call is worth ₹25 at expiry (₹325 minus the ₹300 strike), and subtracting the ₹12 premium paid leaves ₹13. Ignoring the premium would wrongly give ₹25.
- A₹25
- B₹13Correct
- C₹12
- D₹37
Explanation
Intrinsic value at expiry = 325 - 300 = ₹25. Net profit = 25 - premium 12 = ₹13. ₹25 ignores the premium paid; ₹37 adds the premium instead of subtracting it.
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