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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Options

An investor buys one lot of a stock call option with strike Rs 500 at a premium of Rs 12. The lot size is 1,000 shares. The option is held to expiry and the stock settles at Rs 520. What is the investor's net profit?

The net profit is Rs 8,000. The call is worth Rs 20 per share at expiry (520 minus 500), the buyer paid Rs 12 premium, so the gain is Rs 8 per share, which is Rs 8,000 on a lot of 1,000 shares.

  1. ARs 8,000Correct
  2. BRs 20,000
  3. CRs 12,000
  4. DRs 32,000

Explanation

Intrinsic value at expiry = 520 - 500 = Rs 20. Net profit per share = 20 - 12 = Rs 8. For a lot of 1,000 shares, profit = Rs 8,000. Rs 20,000 ignores the premium paid, and Rs 12,000 is only the premium.

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