NISM Certifications · NISM-Series-VIII: Equity Derivatives · Basics of Derivatives
An investor buys a Nifty call option with a strike of 22,000 at a premium of Rs 150. The option is held to expiry and Nifty settles at 22,400. Ignoring transaction costs, what is the investor's net profit per unit?
The net profit is Rs 250 per unit. The call expires with an intrinsic value of 400 (22,400 minus 22,000), and subtracting the Rs 150 premium paid gives Rs 250. Ignoring the premium would wrongly give Rs 400.
- ARs 400
- BRs 250Correct
- CRs 150
- DRs 550
Explanation
Intrinsic value at expiry = 22,400 - 22,000 = 400. Net profit = 400 - premium 150 = 250. Rs 400 ignores the premium paid; Rs 550 wrongly adds the premium.
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