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 Rs 400 and pays a premium of Rs 15 per share. At expiry the stock trades at Rs 430. What is the net profit per share to the buyer, ignoring costs?
The net profit is Rs 15 per share. The call is worth Rs 30 at expiry (430 minus 400 strike), and subtracting the Rs 15 premium paid gives Rs 15. Ignoring the premium would wrongly give Rs 30.
- ARs 30
- BRs 15Correct
- CRs 45
- DRs 10
Explanation
Intrinsic value at expiry = 430 - 400 = Rs 30. Net profit = 30 - 15 premium = Rs 15. Rs 30 ignores the premium, and Rs 45 adds the premium instead of deducting it.
Did you get it right without looking?
One question tells you little. A timed set on Derivatives shows your real accuracy, how long you take and where you lose marks.
More Derivatives questions
- Under SEBI's rules for portfolio managers, which statement about use of derivatives for a discretionary PMS client is generally correct?
- A PMS portfolio worth Rs 5 crore has a beta of 1.2. A manager wants to cut the beta to 0.6 using Nifty futures of contract value Rs 25 lakh …
- In a futures contract on a stock index, which feature distinguishes it from a forward contract on the same index?
- In an equity futures contract, the amount that a trader must deposit with the clearing corporation through the broker at the time of taking …
- A PMS manager sold a put option on a stock at a strike of Rs 250 and received a premium of Rs 12. At expiry the stock closes at Rs 230. What…
- In an exchange-traded equity futures contract, which feature is standardised by the exchange rather than negotiated between the buyer and th…