NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Options
An investor buys one lot of a stock put option with strike 500 at a premium of Rs 12. The lot size is 1,000 shares. At expiry the stock settles at Rs 470. What is the investor's net profit?
The net profit is Rs 18,000. The put pays 30 per share (500 minus 470); subtracting the premium of Rs 12 leaves 18 per share, and multiplied by the lot of 1,000 shares this gives Rs 18,000.
- ARs 18,000Correct
- BRs 30,000
- CRs 12,000
- DRs 42,000
Explanation
Put payoff = 500 - 470 = 30 per share. Net per share = 30 - 12 premium = 18. For 1,000 shares, profit = Rs 18,000. Rs 30,000 ignores the premium, and Rs 42,000 wrongly adds the premium.
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