CMA Final · Strategic Financial Management · Options
An investor buys one share at ₹200, buys a put with strike ₹190 for premium ₹8, and sells a call with strike ₹220 for premium ₹5 (a collar). Each option covers one share. What is the maximum possible net profit per share at expiry?
The maximum profit is ₹17 per share. The share gain is capped at ₹20 by the short call strike of ₹220, and the net premium cost of the collar is 8 minus 5, or ₹3, leaving ₹17.
- A₹17Correct
- B₹20
- C₹23
- D₹3
Explanation
Net premium paid = 8 - 5 = ₹3. Above ₹220 the share gain is capped at 220 - 200 = 20, and the call is exercised against the investor. Max profit = 20 - 3 = ₹17. Option ₹20 ignores net premium; ₹23 adds it wrongly.
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