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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Basics of Derivatives

An investor buys a call option on a stock with strike Rs 500 for a premium of Rs 20 and simultaneously buys a put option with the same strike and expiry for a premium of Rs 15. Lot size is 100. If the stock closes at expiry at Rs 560, what is the investor's net profit on the combined position?

The net profit is Rs 2,500. The call is worth Rs 60 per share at expiry and the put is worthless; after deducting total premiums of Rs 35 per share, the gain is Rs 25 per share, or Rs 2,500 on 100 shares.

  1. ARs 2,500Correct
  2. BRs 6,000
  3. CRs 3,500
  4. DRs 9,500

Explanation

Call payoff = 560 - 500 = Rs 60; put expires worthless. Total premium paid = 20 + 15 = Rs 35. Net per unit = 60 - 35 = Rs 25; times 100 = Rs 2,500. Rs 6,000 ignores premiums; Rs 3,500 is premium alone; Rs 9,500 adds premiums to the payoff.

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