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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Strategies using Equity Futures and Equity Options

An investor buys a Nifty 22,000 call at a premium of Rs 200 and sells a Nifty 22,200 call at a premium of Rs 90, same expiry, quantity 50 each. If Nifty closes at 22,400 at expiry, what is the net profit of the position?

The net profit is Rs 4,500. This bull call spread has a maximum payoff of 200 points, equal to the strike difference, less a net premium of 110 points, leaving 90 points per unit. Multiplied by 50 units, the profit is Rs 4,500.

  1. ARs 4,500Correct
  2. BRs 5,500
  3. CRs 9,000
  4. DRs 10,000

Explanation

Net premium paid = 200 - 90 = 110 per unit. Maximum spread value = 22,200 - 22,000 = 200 since both calls are in the money at 22,400 (payoffs 400 and -200 net 200). Profit per unit = 200 - 110 = 90, so for 50 units = Rs 4,500. Rs 10,000 ignores the premium and the cap on gains.

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