NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Understanding Derivatives
An investor buys one lot of a stock call option with strike Rs 500, paying a premium of Rs 20 per share. The lot size is 1,000 shares. At expiry the stock settles at Rs 535. What is the investor's net profit on the position, ignoring transaction costs?
The net profit is Rs 15,000. The call is worth Rs 35 per share at expiry (535 minus strike 500). After subtracting the Rs 20 premium paid, the gain is Rs 15 per share, and across 1,000 shares this comes to Rs 15,000.
- ARs 35,000
- BRs 20,000
- CRs 15,000Correct
- DRs 55,000
Explanation
Intrinsic value at expiry = 535 - 500 = Rs 35 per share. Net profit per share = 35 - 20 = Rs 15. For a lot of 1,000 shares, the profit is Rs 15,000. Rs 35,000 ignores the premium paid, while Rs 20,000 is just the premium.
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