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

An investor buys a call option with strike Rs 1,200 at a premium of Rs 25. At expiry the stock closes at Rs 1,240. What is the investor's net profit per share?

The net profit is Rs 15 per share. The call is worth 1,240 minus 1,200, which is Rs 40 at expiry. Subtracting the Rs 25 premium paid leaves Rs 15. Ignoring the premium gives Rs 40, and adding it gives Rs 65, both wrong.

  1. ARs 40
  2. BRs 25
  3. CRs 15Correct
  4. DRs 65

Explanation

Intrinsic value at expiry = 1,240 - 1,200 = Rs 40. Net profit = 40 - 25 premium paid = Rs 15. Rs 40 ignores the premium, and Rs 65 wrongly adds it.

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