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

An investor buys a stock at ₹800 and sells a call with strike ₹840 for a premium of ₹18 (a covered call). At expiry the stock closes at ₹870. What is the net profit per share on the combined position?

The net profit is ₹58 per share. The stock gains ₹70, the short call loses ₹30 at expiry but earned ₹18 premium, a net loss of ₹12. The covered call profit is capped at strike minus cost plus premium, which equals ₹58.

  1. A₹58Correct
  2. B₹70
  3. C₹40
  4. D₹22

Explanation

Stock gain = 870 - 800 = 70. The short call loses 870 - 840 = 30, offset by premium 18, so net option result = -12. Total = 70 - 12 = ₹58. Equivalent check: maximum profit = (840 - 800) + 18 = 58, since the call caps gains.

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