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

An investor buys one call option on a stock with a strike price of Rs 500 at a premium of Rs 20. The lot size is 100. If the stock closes at Rs 540 at expiry, what is the investor's net profit on the position?

The net profit is Rs 2,000. The call pays 540 minus 500, which is Rs 40 per share, and the premium paid was Rs 20, leaving Rs 20 per share. Multiplying by the lot size of 100 gives Rs 2,000.

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

Explanation

Intrinsic value at expiry = 540 − 500 = Rs 40. Net per share = 40 − 20 = Rs 20. Times lot of 100 gives Rs 2,000. Rs 4,000 ignores the premium; Rs 6,000 adds the premium instead of subtracting it.

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